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Proposed Rule2022-11997

Transparency in Poultry Grower Contracting and Tournaments

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Published

June 8, 2022

Issuing agencies

Agriculture DepartmentAgricultural Marketing Service

Abstract

The Agricultural Marketing Service is soliciting comments on proposed revisions to the regulations under the Packers and Stockyards Act, 1921. The proposal would revise the list of disclosures and information live poultry dealers must furnish to poultry growers and sellers with whom dealers make poultry growing arrangements. The proposal would establish additional disclosure requirements in connection with the use of poultry grower ranking systems by live poultry dealers to determine settlement payments for poultry growers. The proposals are intended to promote transparency in poultry production contracting and to give poultry growers and prospective poultry growers relevant information with which to make business decisions.

Full Text

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[Federal Register Volume 87, Number 110 (Wednesday, June 8, 2022)]
[Proposed Rules]
[Pages 34980-35031]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-11997]

[[Page 34979]]

Vol. 87

Wednesday,

No. 110

June 8, 2022

Part III

Department of Agriculture

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Agricultural Marketing Service

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9 CFR Part 201

Transparency in Poultry Grower Contracting and Tournaments; Proposed
Rule

Federal Register / Vol. 87 , No. 110 / Wednesday, June 8, 2022 /
Proposed Rules

[[Page 34980]]

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DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

9 CFR Part 201

[Doc. No. AMS-FTPP-21-0044]
RIN 0581-AE03

Transparency in Poultry Grower Contracting and Tournaments

AGENCY: Agricultural Marketing Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Agricultural Marketing Service is soliciting comments on
proposed revisions to the regulations under the Packers and Stockyards
Act, 1921. The proposal would revise the list of disclosures and
information live poultry dealers must furnish to poultry growers and
sellers with whom dealers make poultry growing arrangements. The
proposal would establish additional disclosure requirements in
connection with the use of poultry grower ranking systems by live
poultry dealers to determine settlement payments for poultry growers.
The proposals are intended to promote transparency in poultry
production contracting and to give poultry growers and prospective
poultry growers relevant information with which to make business
decisions.

DATES: Comments must be received by August 8, 2022. Comments on the
information collection aspects of this proposed rule must be received
by August 8, 2022.

ADDRESSES: Comments must be submitted through the Federal e-rulemaking
portal at <a href="https://www.regulations.gov">https://www.regulations.gov</a> and should reference the document
number and the date and page number of this issue of the Federal
Register. All comments submitted in response to this proposed rule will
be included in the record and will be made available to the public.
Please be advised that the identity of individuals or entities
submitting comments will be made public on the internet at the address
provided above.

FOR FURTHER INFORMATION CONTACT: S. Brett Offutt, Chief Legal Officer/
Policy Advisor, Packers and Stockyards Division, USDA AMS Fair Trade
Practices Program, 1400 Independence Ave. SW, Washington, DC 20250;
Phone: (202) 690-4355; or email: <a href="/cdn-cgi/l/email-protection#b1c29fd3c3d4c5c59fded7d7c4c5c5f1c4c2d5d09fd6dec7">[email&#160;protected]</a>.

SUPPLEMENTARY INFORMATION: At the beginning of the 20th century, a
small number of meat packing companies dominated the industry and
engaged in practices that were deemed anticompetitive and harmful to
producers. In response, Congress enacted the Packers and Stockyards
Act, 1921 (Act), 7 U.S.C. 181 et seq., which seeks to promote fairness,
reasonableness, and transparency in the marketplace by prohibiting
practices that are contrary to these goals. In the 100 years since the
Act went into effect, business practices changed significantly,
particularly in the poultry industry, for which provisions were added
to the law in 1935.
Within the last 40 years, the poultry industry has become
increasingly concentrated, both horizontally and vertically, with the
use of the poultry grower ranking or ``tournament'' pay system
increasingly predominant throughout. With vertical integration, live
poultry dealers frequently own or control all segments of the
production process except growout, where poultry growers raise young
poultry to harvest size under poultry growing arrangements (contracts).
Under this system, poultry grower investment is substantial and
growing, yet they may face a market dominated by only one or two live
poultry dealers for which they can grow.
We will explain in this document how poultry growers and
prospective poultry growers may find themselves unable to negotiate for
(1) access to critical information needed to properly assess farm
revenue streams, and (2) information related to the distribution of
inputs affecting performance among tournament participants. The
inability to secure this information may expose growers to various
risks of deception that could be reduced or eliminated with the
provision of the information. Additionally, we will establish that live
poultry dealers possess this information and are able to provide it to
growers.
Most chicken growers and some turkey growers raise poultry under a
growing arrangement commonly known as a tournament system. Under this
system, live poultry dealers use a relative performance or grower
ranking system for settlement purposes, i.e., to determine grower
payment among a group of competing growers. We will explain in this
document how poultry growers in tournament systems may find themselves
competing for payment without access to information that would allow
them to optimize poultry production and payment or manage the risks
related thereto.
Over the past several years, the Department of Agriculture (USDA)
has received numerous complaints from poultry growers about poultry
growing contracting in general and tournament systems particularly.
While the complaints cover a range of concerns, a central concern is
the gap between expected earnings and the ability to actually achieve
those outcomes through reasonable efforts by the grower. Accordingly,
AMS is proposing rules that would increase transparency in all poultry
growing contracting, including tournament systems, targeted at key
inflection points for growers--at the time of contracting and housing
upgrades, and at the provision of inputs during tournaments. In this
rulemaking, we are seeking to utilize transparency to secure a more
level playing field for growers and enable a marketplace with fairer
contracts and the fairer operation of those contracts under the
contract production model.

Outline of the Notice of Proposed Rulemaking

I. Background
A. Previous Rulemaking
B. Relevant Terms and Definitions
C. Industry Background
1. Market Structure
2. Poultry Housing Construction and Grower Debt
3. Poultry Grower Compensation
4. Integrator Inputs
a. Stocking Density and Flock Placement Frequency
b. Breed
c. Gender
d. Breeder Flock Age
e. Breeder Flock Health
f. Feed Disruptions
g. Medications
II. Poultry Growing Arrangements
A. Incomplete Contracts
B. Market Power and Risks to Growers
C. Poultry Grower Earnings and Returns on Equity
D. Asymmetrical Information
E. Poultry Grower Concerns
III. Poultry Grower Payment Systems
A. Fixed-Performance Pay Systems
B. Tournament Pay Systems
IV. Poultry Grower Ranking Systems
A. Tournament Settlements
B. Tournament Payments as a Measure of Grower Skill, Effort, and
Innovation
C. Distribution of Inputs Among Tournament Participants
D. Input Variability and Grower Payments
1. Stocking Density
2. Breed Ratios
3. Gender Ratios
4. Breeder Flock Age
5. Breeder Flock Health
6. Feed Disruptions
7. Medications
E. The Need for Transparency
V. Proposed Regulations
A. Definitions
B. Disclosure
C. Contract terms
D. Poultry Grower Ranking Systems
VI. Regulatory Analyses
A. Executive Order 12988--Civil Justice Reform

[[Page 34981]]

B. Executive Order 13175--Consultation and Coordination With
Indian Tribal Governments
C. Civil Rights Impact Analysis
D. Paperwork Reduction Act
E. E-Government Act
F. Executive Orders 12866 and 13563
G. Regulatory Impact Analysis
H. Regulatory Flexibility Analysis
VII. Request for Comments
Amendatory Text
Appendices

I. Background

Among other things, sec. 202(a) of the Act (7 U.S.C. 192) prohibits
live poultry dealers, with respect to live poultry, from engaging in or
using deceptive practices or devices. Further, sec. 410(a) of the Act
(7 U.S.C. 228b-1) requires live poultry dealers obtaining live poultry
under a poultry growing arrangement to make full payment for such
poultry to the poultry grower from whom the dealer obtains the poultry
on a timely basis. Sec. 407(a) of the Act authorizes the Secretary of
Agriculture (Secretary) to make rules and regulations as necessary to
carry out the provisions of the Act. Such regulations are found, in
part, in the Code of Federal Regulations (CFR) at 9 CFR part 201.
This proposed rule builds on existing disclosure concepts under the
Packers and Stockyards Act in 7 U.S.C 197(a) through (c) and 9 CFR
201.100. The current disclosure framework has improved transparency in
poultry contracting. However, the modern poultry industry now requires
larger, and growing, capital investments, and growers need additional
information with which to make business decisions. Growers have
consistently expressed concerns about the inadequacy of some production
contract terms and the discretionary functions exercised by live
poultry dealers under those contracts, which they assert have exposed
them to deception and other abuses. AMS agrees many production
contracts do not provide enough information for growers to assess their
expected value, and important information relating to live poultry
dealer obligations and practices should be better illuminated. The
purpose of this proposed rule is to provide growers with this type of
relevant information. This proposal reflects AMS's desire to build on
existing Packers and Stockyard Act disclosure concepts to ensure
poultry growers have the tools and information they need to be
successful in their pursuits.
Disclosure has been a staple \1\ of the Act's regulatory scheme and
is required under the regulations. Moreover, disclosure for the primary
purpose of providing adequate information necessary for parties in
asymmetrical business relationships to make informed business decisions
and risk assessments has long been the subject of Federal Trade
Commission (FTC) regulation under section 5 of the FTC Act, which, like
section 202(a) of the Packers and Stockyards Act, addresses deception.
For example, the Federal Trade Commission's Franchise Rule requires the
franchising industry to provide prospective purchasers of franchises
information necessary to weigh the risks and benefits of an investment
by providing required disclosures in a uniform format.\2\ This proposed
rule is designed to similarly provide current and prospective poultry
growers with sufficient information prior to entering into an
agreement.
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\1\ For example, see current 9 CFR 201.100(a)--Poultry growing
arrangement, timing of disclosure.
\2\ 16 CFR part 436; 84 FR 9051 (May 2019).
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This proposed rule would revise Sec. 201.100 of the regulations by
adding certain items to the list of required disclosures a live poultry
dealer must make to poultry growers and prospective poultry growers in
connection with poultry growing arrangements. The proposal would
further require live poultry dealers to specify additional terms in
poultry growing contracts. AMS intends these proposed revisions to
improve transparency and forestall deception in the use of poultry
growing arrangements.
This proposed rule would also add a new Sec. 201.214 to the
regulations that would require live poultry dealers to provide certain
information to poultry growers in tournament pay systems about
integrator-controlled inputs related to the poultry flocks growers
receive for growout. The proposed provisions also would add a new level
of transparency to grower ranking sheets, ensuring that poultry growers
can evaluate the distribution of inputs among all tournament
participants and better assess the effect on grower payment. AMS
intends the proposed requirements to provide greater transparency and
forestall deception in the use of poultry grower ranking systems.
Finally, this proposed rule would make conforming changes to the
regulations by adding to the list of definitions in Sec. 201.2 to
define terms used in revised Sec. 201.100 and new Sec. 201.214.
Specifics of each of these proposals are provided later in this
document.

A. Previous Rulemaking

USDA has made previous attempts to address grower concerns arising
from the use of poultry growing arrangements and poultry grower ranking
systems. Two such attempts were made by USDA's Grain Inspection,
Packers and Stockyards Administration (GIPSA), which previously
administered the provisions of the Act. GIPSA issued a proposed rule in
2010 (75 FR 35338; June 22, 2010) that would have, among other things,
identified as unfair, unjustly discriminatory, and deceptive specific
practices related to poultry contracting. The 2010 proposed rule would
have required live poultry dealers--when paying growers under poultry
grower ranking systems--to pay growers the same base pay for growing
the same type and kind of poultry. The 2010 proposed rule further would
have required that tournament system growers be settled in groups with
other growers with similar house types. After considering comments on
the 2010 proposal, GIPSA elected not to finalize certain provisions
related to poultry contracting, so it modified the original proposal
and published a second proposed rule in 2016 (81 FR 92723; December 20,
2016). The 2016 proposed rule would have identified criteria that the
Secretary could consider when determining whether a live poultry
dealer's use of a system for ranking poultry growers for settlement
purposes is unfair, unjustly discriminatory, or deceptive or gives an
undue or unreasonable preference, advantage, prejudice, or
disadvantage. The proposed amendments would also have clarified that,
absent demonstration of a legitimate business justification, failing to
use a poultry grower ranking system in a fair manner after applying the
identified criteria is unfair, unjustly discriminatory, or deceptive
and a violation of the Packers and Stockyards Act, regardless of
whether it harms or is likely to harm competition. The original 60-day
public comment period for the 2016 proposed rule was extended an
additional 30 days, consistent with the memorandum of January 20, 2017,
to the heads of executive departments and agencies from the Assistant
to the President and Chief of Staff entitled ``Regulatory Freeze
Pending Review.''
In November 2017, responsibility for GIPSA activities was
transferred to AMS, which now administers the Act and regulations, and
which has assumed responsibility for this rulemaking. In its review of
public comments on the 2016 proposed rule, AMS found that many of

[[Page 34982]]

the comments--both supportive and opposed--identified reasonable
concerns regarding the proposed regulation's structure and language.
AMS recognized further that the proposed rule may not have adequately
addressed information imbalances between contracting parties. AMS
determined that the 2016 proposed rule was unable to address many of
the commenters' concerns without material changes and elected to
withdraw the 2016 proposed rule and develop a new regulatory proposal
pertaining to information imbalances in poultry grower contracting and
grower ranking systems. The 2016 proposed rule was withdrawn on
November 4, 2021 (86 FR 60779).
Executive Order 14036--Promoting Competition in the American
Economy (86 FR 36987; July 9, 2021) directs the Secretary of
Agriculture to address unfair treatment of farmers and improve
conditions of competition in their markets by considering rulemaking to
address, among other things, certain practices related to poultry
grower ranking systems. AMS has considered that direction in
undertaking this rulemaking. While the discussions in this rule focus
largely on broiler (chicken) production, the industry concepts
presented--and the proposed regulations--are intended to apply to the
commercial production of all poultry species where the proposed
regulatory requirements are relevant. The bulk of available research
and information currently available to AMS specifically addresses
broiler production. Nevertheless, AMS believes that body of research
and information is relevant to other poultry species, given the absence
of material differences in their commercial production.

B. Relevant Terms and Definitions

For this preamble, section 2(a) of the Act (7 U.S.C. 182) provides
various useful definitions: A live poultry dealer is any person engaged
in the business of obtaining live poultry by purchase or under a
poultry growing arrangement for the purpose of either slaughtering it
or selling it for slaughter by another. A poultry grower is any person
engaged in the business of raising and caring for live poultry for
slaughter by another, whether the poultry is owned by such a person or
by another, but not an employee of the owner of such poultry. A poultry
growing arrangement is any growout contract, marketing agreement, or
other arrangement under which a poultry grower raises and cares for
live poultry for delivery, in accord with another's instructions, for
slaughter.

C. Industry Background

In this section, we explain how high levels of vertical integration
in U.S. commercial poultry production have influenced the poultry
production contracting process and the production contracts themselves.
We also illustrate how the effects of market concentration limit
poultry growers' options in relation to dealers with whom they can
contract to produce poultry. When they have few or no alternative
options, growers lack the bargaining power to negotiate for, among
other things, better information symmetry, which gives rise to the risk
of deception at a series of points in the relationship. We also
describe some of the factors that affect grower payments as they relate
to the information imbalances we are proposing to remedy.
1. Market Structure
Some live poultry dealer firms own and manage local ``complexes''
of integrated operations that include hatcheries, feed mills,
transportation systems, and processing facilities, and they contract
with individual growers within a local region to raise birds for meat
and hatchery eggs.\3\ These live poultry dealers that own and manage
vertically integrated operations are referred to in the industry as
``integrators.'' Other industries may follow this model to some extent
(for example, some firms manage multiple aspects of hog production),
but it is used in almost all broiler chicken production \4\ and is
fairly common in turkey production.
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\3\ MacDonald, James M. Technology, Organization, and Financial
Performance in U.S. Broiler Production, EIB-126, U.S. Department of
Agriculture, Economic Research Service, June 2014.
\4\ In a 2011 survey of 17 sample states, 97% of broiler
production was done by contract growers. MacDonald (June 2014) Op.
Cit.
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Through vertical integration, integrators control the complete
supply chain from poultry genetics to slaughter. Integrators also own
most of the inputs and manage the operation of the supply chain.
However, integrators outsource the function and major costs of raising
the poultry to broiler growers, while controlling much of that process
through their production contracts. Through the poultry growing
arrangement, broiler growers provide the growout facilities and the
equipment, labor, and management associated with those facilities.
Broiler growers are responsible for utilities, fuel, maintenance, and
repair. The growers' tasks include ensuring the equipment functions
properly and the environment inside the house is satisfactory at all
times. The grower is responsible for waste removal and disposal of dead
birds. These activities are subject to significant direction and
control by the integrator or integratory subsidiary. Integrators exert
significant power over contract poultry grower operations through
individual production contracts, payment systems, and control of
certain production variables, such as poultry breeds, breeder stock
age, frequency of flock placements, stocking density, length of the
growout periods (the number of days birds are housed on the grower's
farm), feed quality and delivery, and the type and administration of
veterinary medicines.
Market consolidation combined with certain natural factors (such as
the fragility of birds limiting their transport), many integrators
operate as monopsonists \5\ or oligopsonists \6\ in their relevant
regional market. Some research \7\ shows a correlation in local markets
between the number of available integrators and grower payments, with
payments shrinking as the number of integrators decreases. In local
markets, the lack of alternative integrators coupled with integrator
control and discretion over production contracts leaves growers with
little market power to demand reasonable contract transparency. As
discussed in the following section, growers' plights are aggravated
further by the substantial investment required to enter the poultry
business.
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\5\ Merriam-Webster online dictionary: A monopsonist is one who
is a single buyer for a product or service of many sellers. <a href="https://www.merriam-webster.com/dictionary/monopsonist">https://www.merriam-webster.com/dictionary/monopsonist</a>; accessed 3/8/2022.
\6\ Merriam-Webster online dictionary: Oligopsony is a market
situation in which each of a few buyers exerts a disproportionate
influence on the market. An oligopsonist is a member of an
oligopsonistic industry or market. <a href="https://www.merriam-webster.com/dictionary/oligopsonist">https://www.merriam-webster.com/dictionary/oligopsonist</a>; accessed 3/8/2022.
\7\ MacDonald, James M., and Nigel Key. ``Market Power in
Poultry Production Contracting? Evidence from a Farm Survey''.
Journal of Agricultural and Applied Economics 44 (November 2012):
477-490. See also, MacDonald, James M. Technology, Organization, and
Financial Performance in U.S. Broiler Production, EIB-126, U.S.
Department of Agriculture, Economic Research Service, (June 2014):
29-30.
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2. Poultry Housing Construction and Grower Debt
Poultry growout operations require significant financial
investments on the part of poultry growers, who typically provide the
facilities (poultry housing and necessary equipment), utilities
(electricity, gas, and water), manure management, compliance with
environmental regulations, labor, and day-to-day management of the
growing poultry. One of the costliest investments

[[Page 34983]]

is in poultry housing and equipment. A poultry growing contract
includes the live poultry dealer's specifications for the poultry
housing and equipment the growers are required to supply under the
contract. At times, the live poultry dealer may encourage, incentivize,
or even require a poultry grower to upgrade existing housing or
equipment in order to renew or revise an existing contract.
A 2011 study estimated a cost of $924,000 for site preparation,
construction, and necessary equipment for four 25,000-square-foot
poultry houses (or $231,000 per house) in rural Georgia at that time,
independent of the cost for the land.\8\ Costs for establishing poultry
houses have increased substantially since 2011, due to the advancement
of new technologies in poultry housing and the increased cost of
materials. AMS estimates current construction costs at $350,000 to
$400,000 per poultry house.\9\
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\8\ Cunningham, Dan L., and Brian D. Fairchild. ``Broiler
Production Systems in Georgia Costs and Returns Analysis 2011-
2012.'' UGA Cooperative Extension Bulletin 1240 (November 2011),
University of Georgia Cooperative Extension.
\9\ See, for example, Cunningham and Fairchild (November 2011)
Op. Cit.; Simpson, Eugene, Joseph Hess and Paul Brown, Economic
Impact of a New Broiler House in Alabama, Alabama A&M & Auburn
Universities Extension, March 1, 2019 (estimating a $479,160
construction cost for a 39,600 square foot broiler house).
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Poultry growers can incur considerable debt to make the investments
necessary for poultry production. Most new broiler housing is debt-
financed. According to MacDonald, U.S. contract poultry growers' total
debt amounted to $5.2 billion, or 22 percent of the total value of
their assets, in 2011.\10\ The research cited here found that debt
loads--and exposure to liquidity risks, should flock placements and
revenues fall--are closely related to the age of the operation, with
newer farmers carrying greater debt relative to the value of farm
assets. Farmers with fewer than six years of experience in broiler
production carried debt equal to 51 percent of assets, on average, and
one quarter of those farmers carried debt equal to at least 77 percent
of assets.
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\10\ MacDonald (June 2014) Op. Cit.
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The weight of poultry grower debt load can be exacerbated by three
additional factors: (1) The length, in terms of time, of a poultry
growing arrangement is rarely long enough to cover the grower's debt
repayment period, and can be as short as one flock; (2) growers may be
encouraged or required by live poultry dealers to invest in facility
upgrades, which may lead to additional debt; and (3) poultry housing is
a specific-use asset with little salvage or repurpose value.\11\ In
other words, the grower is unlikely to be able to use or sell the
facilities for a different purpose should the poultry growing contract
be terminated.
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\11\ Poultry growing facilities are often characterized by
certain expensive attributes, such as temperature and other habitat
control systems. A fully equipped poultry growing facility
repurposed, for example, as a hay barn or other storage is unlikely
to generate the revenue necessary to meet a grower's $400,000
mortgage obligation. Nor is repurposing it for an alternative
livestock usage, such as hogs or dairy cows, possible, at least
without retrofitting that would essentially demolish the growout
facility. The grower's return on investment is tied to using the
facility as intended.
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Grower debt problems are exacerbated by the limited number of live
poultry dealers in most localities and by dealer-specific requirements
that inhibit grower movement between dealers. For example, a grower who
currently produces smaller birds for one live poultry dealer may desire
to move to a different dealer that wants larger birds. The grower could
be required to upgrade their poultry growing facility to include more
cooling capacity in order to accommodate larger birds. However, such
upgrades may not be economically feasible for the grower, so the grower
stays with the current live poultry dealer.
3. Poultry Grower Compensation
Poultry growers are compensated on the growout of individual
flocks. Most growers are paid on the basis of the weight of the
finished poultry, adjusted by a feed conversion factor. Live poultry
dealers calculate feed conversion by dividing the total pounds of
poultry feed used during growout by the total pounds of finished
poultry at the end of growout. The feed conversion factor is expressed
as a ratio of pounds of feed to pounds of finished poultry. For
example, a feed conversion ratio of 1.93 means an average of 1.93
pounds of poultry feed were needed to produce each pound of finished
poultry. The live poultry dealer uses the feed conversion factor to
measure poultry grower efficiency. Specific poultry growing
arrangements may provide for a variety of nuanced cost and payment
formulas, and may include supplemental fuel and square footage bonus
payments. However, the greatest portion of grower compensation is
determined according to the following simplified equation:

Farm Weight (in pounds) x Feed Conversion (in dollars) = Grower Pay

Under a typical scenario, birds are caught at the end of the
growout period, loaded onto trucks, and delivered to the processing
facility, where they are weighed. The sum of all weights of all loads
originating from a grower's farm is the ``farm weight.'' ``Feed
conversion,'' as described above, is determined by formula and
converted to a monetary value.
Alternatively, growers may receive partial or full compensation
based on their growing facility square footage. For instance, some
growers may receive square footage supplements as incentives to offset
new costs for housing. Or in rare cases, compensation is based strictly
on facility square footage. In either of these situations, square
footage compensation is based on the size of the poultry growing
facility, regardless of the number or weight of birds produced.
Growers seeking to maximize farm returns would naturally prefer to
keep their facilities in a near-constant state of production, receiving
as many individual flock placements as possible over a relevant time
period, with minimal idle or lay-out time between flocks.\12\ If they
are paid on a farm-weight basis, growers seeking to maximize individual
flock returns will naturally strive to maximize farm weight.
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\12\ Growers views and practices may vary with respect to their
preferred times between flocks for the purposes of appropriate
maintenance and sanitation activities.
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4. Integrator Inputs
Two important factors affecting poultry grower compensation are the
timing and quality of certain inputs controlled by the live poultry
dealer. In this section we describe those inputs and explain how their
timing and variation can impact farm weight and feed conversion, and
thus grower payments.
a. Stocking Density and Flock Placement Frequency
Often expressed as a ratio of birds per square foot, or pounds
(target weight of poultry at harvest) per square foot, stocking density
reflects the number of birds placed on a farm. The target weight
informs a range of stocking densities that may result in optimal bird
performance. Integrators set both stocking density and target weight.
For example, one approach \13\ recommends the following range of
stocking densities:
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\13\ National Chicken Council. National Chicken Council Animal
Welfare Guidelines and Audit Checklist For Broilers, pp. 11-12,
(September 2020). <a href="https://www.nationalchickencouncil.org/wp-content/uploads/2021/02/NCC-Animal-Welfare-Guidelines_Broilers_Sept2020.pdf">https://www.nationalchickencouncil.org/wp-content/uploads/2021/02/NCC-Animal-Welfare-Guidelines_Broilers_Sept2020.pdf</a>;
accessed 1/3/2022.
Other approaches include those set forth by the Better Chicken
Commitment, which will set a maximum stocking density of 6.0 lbs./
sq. foot starting in 2024, available at <a href="https://betterchickencommitment.com/policy/">https://betterchickencommitment.com/policy/</a> (last accessed March 2022).

[[Page 34984]]

------------------------------------------------------------------------
Maximum bird weight range Maximum stocking density
------------------------------------------------------------------------
Below 4.5 lbs. liveweight................. 6.5 pounds per sq. ft
4.5 to 5.5 lbs. liveweight................ 7.5 pounds per sq. ft.
5.6 to 7.5 lbs. liveweight................ 8.5 pounds per sq. ft.
More than 7.5 lbs. liveweight............. 9.0 pounds per sq. ft.
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Stocking density has critical implications for poultry growers
because--up to a certain point--farm weight can increase as the number
of birds per facility square foot increases. Because stocking densities
can impact payments based on farm weights, growers desire the maximum
stocking density that does not result in performance impairments.\14\
Integrators dictate the stocking density of each placement, and
generally prefer maximum stocking densities to maximize production
volume. Of course, complex-level supply factors may affect integrator
decision making, and integrators may not place as many birds with
growers as growers could accommodate and would like for maximum growout
efficiency. Consumer, environmental, and animal welfare factors may
also affect stocking density decisions by integrators. However, being
able to anticipate the minimum size of flocks that will be placed for
growout on their farms each year allows growers to make appropriate
farm management and financial decisions. This is challenging because
many poultry growing arrangements do not specify the minimum stocking
density of flocks that will be placed with the grower.
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\14\ Dozier III, W.A., et al. ``Stocking Density Effects on
Growth Performance and Processing Yields of Heavy Broilers,''
Poultry Science 84 (2005): 1332-1338; Puron, Diego et al. ``Broiler
performance at different stocking densities.'' Journal of Applied
Poultry Research 4.1:55-60 (1995).
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Obviously, maximum efficiency is also achieved when a grower's
facility is in production for as many days as possible during the year.
Depending on the term of the poultry growing arrangement between the
live poultry dealer and the poultry grower, the dealer may schedule the
placement of one or more flocks at the grower's facility over the
course of a year, with gaps (lay-out or idle time) for necessary
cleanup and maintenance between placements. Being able to anticipate
the number of flocks that will be placed for growout on their farms
each year allows growers to make appropriate farm management and
financial decisions. However, many poultry growing arrangements do not
specify the number of flocks per year that will be placed with the
grower.
b. Breed
Modern chicken breeds are the result years of evolution by means of
natural selection, to which artificial selection for commercial
objectives has been applied. At the highest level, the pure-breeding
lines are owned and controlled by the breeding companies. These lines
are subjected to full scale selection programs; it is from these lines
that all of a company's broiler products have descended.\15\ The great-
grandparent stocks, which are produced from the pure-bred lines, are
subjected to mass selection for selected traits. Specific grandparent
lines are cross bred to produce the parent stock, which are then
distributed to breeder growers. The final step of the intensive
artificial selection is the crossbreeding of these hybrids (parent
stock) to give rise to the production broilers, which are raised for
slaughter by contract growers.
---------------------------------------------------------------------------

\15\ Muir, W.M. and SE Aggrey. Poultry Genetics, Breeding, and
BioTechnology (2003).
---------------------------------------------------------------------------

Growth rate has consistently been the prime selection trait since
the 1950s, with more recent emphasis placed on the yield and other
attributes of breast meat, limiting mortality, and feed use
efficiency.\16\ \17\ Much progress has been made in artificial
selection technologies in order to increase growth rate and feed use
efficiency. In the production of broilers, different breeds may be used
within each target weight category. Breeds with higher and faster
growth rates may result in heavier farm weights, with the inverse also
being true.
---------------------------------------------------------------------------

\16\ Muir and Aggrey (2003) Op. Cit.
\17\ Laughlin, Ken, ``The Evolution of Genetics, Breeding, and
Production. Temperton Fellowship Report 15 (2007).
---------------------------------------------------------------------------

To illustrate, the following comparison uses information from the
breed performance and nutrition guides published by the companies
themselves.\18\
---------------------------------------------------------------------------

\18\ See: Cobb500TM Broiler Performance & Nutrition
Supplement (2022), Cobb-Vantress; Cobb700TM Broiler
Supplement, Cobb-Vantress, 2022; Ross 308/Ross 308FF Broiler
Performance Objectives 2019, Aviagen Ross, <a href="http://eu.aviagen.com/tech-center/download/1339/Ross308-308FF-BroilerPO2019-EN.pdf">http://eu.aviagen.com/tech-center/download/1339/Ross308-308FF-BroilerPO2019-EN.pdf</a>,
accessed March 25, 2022.

----------------------------------------------------------------------------------------------------------------
Breed
-----------------------------------------------
Cobb 500 Cobb 700 Ross 308/308FF
----------------------------------------------------------------------------------------------------------------
42nd Day:
Weight:..................................................... 7.23 6.28 6.914
Cumulative Feed Conversion Rate:............................ 1.555 1.597 1.596
56th Day:
Weight:..................................................... 10.23 9.07 10.115
Cumulative Feed Conversion Rate:............................ 1.842 1.849 1.914
----------------------------------------------------------------------------------------------------------------

c. Gender
The gender of poultry placed on a grower's farm facility may impact
the flock's growth rate and final farm weight, and thus grower payment.
Differences between the growth rates of male and female broilers have
been reported by many researchers. Under similar management conditions,
males grow faster and achieve marketable weight earlier than females.
According to Burke and Sharp,\19\ the mean body weight of a male embryo
was significantly greater than that of a female at 11, 13, and 18 days
of incubation. Male broilers have been reported to grow faster and
heavier than females under various rearing conditions. Growth rate
reflects metabolic activity, which is strongly influenced by sex, age,
nutritional status, and homogeneity. It also has been reported that
male chickens showed better performance than females in terms of more
weight gain.\20\ The majority of integrators use ``straight-run'' birds
to supply farms. Straight-run

[[Page 34985]]

birds are not sexed and are randomly grouped for growout.
---------------------------------------------------------------------------

\19\ Burke, William and Peter J. Sharp. ``Sex Differences in
Body Weight of Chicken Embryos.'' Poultry Science 68.6 (1989): 805-
810.
\20\ Beg, Mah, et al. Effects of Separate Sex Growing on
Performance and Metabolic Disorders of Broilers. Diss. Faculty of
Animal Science and Veterinary Medicine, Sher-e-Bangla Agricultural
University, Dhaka, Bangladesh, 2016.
---------------------------------------------------------------------------

d. Breeder Flock Age
Breeder facilities are populated with select poultry breeds whose
purpose is to produce eggs and ultimately chicks that will go into
broiler production. The age of breeder flocks may also influence the
size and quality of eggs and chicks, bird mortality, and feed
conversion, and ultimately the weight of poultry at harvest and thus
grower payments. Older hens lay larger eggs that hatch into larger
chicks,\21\ \22\ \23\ and egg weight and hatching weight of chicks are
correlated with market age weight.\24\ \25\ Small chicks from young
hens have higher mortality after placement and reach market weight at a
later age, thus theoretically requiring more time in growout and more
feed to achieve market weight.
---------------------------------------------------------------------------

\21\ Washburn, K.W., and R.A. Guill. ``Relationship of Embryo
Weight as a Percent of Egg Weight to Efficiency of Feed Utilization
in the Hatched Chick.'' Poultry Science 53.2 (1974): 766-769.
\22\ Weatherup, S.T.C., and W.H. Foster. ``A Description of the
Curve Relating Egg Weight and Age of Hen.'' British Poultry Science
21.6 (1980): 511-519.
\23\ Wilson, H.R. ``Interrelationships of Egg Size, Chick Size,
Posthatching Growth and Hatchability.'' World's Poultry Science
Journal 47.1 (1991): 5-20.
\24\ Goodwin, K. ``Effect of Hatching Egg Size and Chick Size
Upon Subsequent Growth Rate in Chickens.'' Poultry Science 40
(1961): 1408-1409.
\25\ Morris, R.H., D.F. Hessels, and R.J. Bishop. ``The
Relationship Between Hatching Egg Weight and Subsequent Performance
of Broiler Chickens.'' British Poultry Science 9.4 (1968): 305-315.
---------------------------------------------------------------------------

USDA research \26\ indicates breeder facility flocks are typically
populated and depopulated on an all-in and all-out basis. That is, the
majority of birds in each breeder flock are all the same age. Each
breeder flock is entirely depopulated (slaughtered) when it reaches a
certain age where egg and progeny quality diminish.
---------------------------------------------------------------------------

\26\ Video-conference interview with Joseph L. Purswell, Ph.D.,
PE, Agricultural Engineer, Dr. Katie Elliot, Hatchery Research
Scientist, Dr. Klint McCafferty, Nutrition Research Scientist,
Agricultural Research Service, U.S. Department of Agriculture (Sept.
2, 2021).
---------------------------------------------------------------------------

Composed of a high female-to-male ratio, a typical broiler breeder
flock's productive life cycle ranges from 21 weeks to 65 weeks. Studies
suggest that broiler offspring from hens between 35 and 51 weeks of age
perform best at different periods during growout.\27\ However, research
results concerning feed efficiency and weights of broilers at market
age have been mixed. Feed efficiency has been shown to be
positively,\28\ negatively,\29\ or not \30\ correlated to weight of
broilers at market age. Even with the benefit of static growth rates,
poultry grown from smaller chicks are unlikely to match the weight of
poultry grown from chicks of more mature breeder flocks in identical
time frames.
---------------------------------------------------------------------------

\27\ Peebles, E. David, et al. ``Effects of Breeder Age and
Dietary Fat on Subsequent Broiler Performance. 1. Growth, Mortality,
and Feed Conversion.'' Poultry Science 78.4 (1999): 505-511.
AMS notes additionally that research in this and related areas
has limitations. It is older and results are mixed. AMS is concerned
that publically available research has stagnated, despite the
introduction of new breed strains in the intervening years. Because
integrators now own the genetics companies, AMS has additional
concerns that research has, in effect, been privatized, creating
informational asymmeteries. Based on regulatory experience and on
public comments, growers believe these factors affect performance,
highlight its value to growers from disclosure.
\28\ O'Neill, J.B. ``Relationship of Chick Size to Egg Size and
its Effect Upon Growth and Mortality.'' Poultry Science 29 (1950):
774.
\29\ Wyatt, C.L., W.D. Weaver Jr, and W.L. Beane. ``Influence of
Egg Size, Eggshell Quality, and Posthatch Holding Time on Broiler
Performance.'' Poultry Science 64.11 (1985): 2049-2055.
\30\ Guill, R.A., and K.W. Washburn. ``Genetic Changes in
Efficiency of Feed Utilization of Chicks Maintaining Body Weight
Constant.'' Poultry Science 53.3 (1974): 1146-1154.
---------------------------------------------------------------------------

e. Breeder Flock Health
Various diseases \31\ and conditions can adversely affect egg
production and quality either directly, by affecting the reproductive
system, or indirectly, by affecting the overall health of the bird.
According to Spackman,\32\ many of the diseases originating in breeder
flocks can result in suboptimal offspring performance.
---------------------------------------------------------------------------

\31\ Examples include: Bacterial (pullorum and gallinarum),
Mycoplasma, and Avian encephalomyelitis (AE).
\32\ Wells, R.G., and C.G. Belyawin. ``Egg quality-current
problems and recent advances.'' Poultry science symposium series.
No. 636.513 W4. 1987. (citing Spackman, D. ``The Effects of Disease
on Egg Quality.''
---------------------------------------------------------------------------

The progeny flocks from impaired breeder flocks may be associated
with higher mortality, higher morbidity, and decreased growth rates,
resulting in decreased farm weight or lower feed conversion, which
impact grower payment. Disease outbreaks can generally be traced to an
individual breeder farm, but growers have no control or knowledge
regarding the source of young poultry placed at their facilities for
growout.
f. Feed Disruptions
Poultry diets are formulated by integrators to optimize bird
weight. Integrators are responsible for ensuring feed is consistently
delivered to growout facilities. However, feed disruptions--where
poultry go without feed for a certain length of time--may occur for any
number of reasons, such as feed mill power outages, ingredient supply
shortages, or transportation problems, and they may result in
suboptimal poultry weight gain. A study by Dozier and others \33\
indicated that broiler body weights decreased when feed was removed.
Depending upon the timing and duration of a feed outage, a broiler may
be able to recoup any weight loss. Regardless of their cause, feed
disruptions have the potential to affect bird weights, result in less
farm weight, and affect grower payments.
---------------------------------------------------------------------------

\33\ Dozier III, W.A., et al. ``Effects of Early Skip-A-Day Feed
Removal on Broiler Live Performance and Carcass Yield.'' Journal of
Applied Poultry Research 11.3 (2002): 297-303.
---------------------------------------------------------------------------

g. Medications
A live poultry dealer may find it necessary to supply one or more
flocks with veterinary medicines or supplements during flock growout.
Such treatments may be necessary to mitigate disease within a single
poultry house or an entire flock, or to boost the performance of
suboptimal progeny from impaired breeder flocks, as described above.
These treatments may affect the flock's growth rate or mortality and,
therefore, grower payments.

II. Poultry Growing Arrangements

In this section, we explain the operation of poultry growing
arrangements in general, as well as some of the risks growers face in
connection with those arrangements. We also summarize comments we've
received from growers expressing their concerns about contracting with
live poultry dealers to produce poultry.

A. Incomplete Contracts

As explained earlier in this document, a poultry growing
arrangement or production contract reflects the arrangement between a
live poultry dealer and a poultry grower, under which the grower is
compensated for raising live poultry for delivery to the dealer for
slaughter. Such a contract may be viewed as complete if the terms
include the substantive legal, practical, and economic promises,
obligations, and contingencies needed to operate in a poultry growing
arrangement. Additionally, those terms should be verifiable by a third-
party and legally enforceable. Incomplete contracts may arise when
practically important terms do not meet those conditions. Incomplete
contracts may magnify risks with respect to the performance of the
contractual counterparty and lead to other potential
inefficiencies.\34\ In particular, at least one party may have

[[Page 34986]]

discretionary latitude to deviate from expectations.\35\ For example,
poultry production contracts often do not guarantee the number of
flocks a grower will receive, even under long-term contracts, although
this is a critical datapoint for understanding the value of the
contract to the grower.\36\ The following sections will highlight areas
and terms where AMS believes typical poultry growing arrangements are
deficient or incomplete from an economic or operational standpoint,
inhibiting growers' ability to properly assess the expected value of
the contract.
---------------------------------------------------------------------------

\34\ Wu, S. 2014. ``Adapting Contract Theory to Fit Contract
Farming''. American Journal of Agricultural Economics, Volume 96,
Issue 5 (October 2014): 1241-1256.
\35\ Steven Y. Wu and James MacDonald, ``Economics of
Agricultural Contract Grower Protection Legislation,'' Choices,
Third Quarter, 2015, pp 1-6.
\36\ MacDonald (June 2014) Op. Cit.
---------------------------------------------------------------------------

B. Market Power and Risks to Growers

Live poultry dealers often operate as monopsonists \37\ or
oligopsonists \38\ in a local market. According to MacDonald and
Key,\39\ about one quarter of contract growers reported that there was
just one live poultry dealer in their area; another quarter reported
two; another quarter reported three; and the rest reported four or
more. Owing to their greater negotiating power than that of the poultry
growers with whom they contract, live poultry dealers set the terms of
the contracts. Consequently, most poultry growers have little or no
influence over the frequency of individual flock placements they
receive over any particular time period. A growout period is based on
the target weight of finished poultry, as determined by the live
poultry dealer. The amount of time between flocks is also decided by
the dealer.
---------------------------------------------------------------------------

\37\ Merriam-Webster online dictionary: A monopsonist is one who
is a single buyer for a product or service of many sellers. <a href="https://www.merriam-webster.com/dictionary/monopsonist">https://www.merriam-webster.com/dictionary/monopsonist</a>; accessed 3/8/2022.
\38\ Merriam-Webster online dictionary: Oligopsony is a market
situation in which each of a few buyers exerts a disproportionate
influence on the market. An oligopsonist is a member of an
oligopsonistic industry or market. <a href="https://www.merriam-webster.com/dictionary/oligopsonist">https://www.merriam-webster.com/dictionary/oligopsonist</a>; accessed 3/8/2022.
\39\ MacDonald, James M., and Nigel Key. ``Market Power in
Poultry Production Contracting? Evidence from a Farm Survey''.
Journal of Agricultural and Applied Economics 44 (November 2012):
477-490. See also, MacDonald, James M. Technology, Organization, and
Financial Performance in U.S. Broiler Production, EIB-126, U.S.
Department of Agriculture, Economic Research Service, (June 2014):
29-30.
---------------------------------------------------------------------------

Grower payments are also influenced by live poultry dealer market
power. In the study cited above, grower payments (per pound,
controlling for bird size) were lower in markets with fewer dealers:
going from four integrators to one lowered grower payments by eight
percent (8%). This imbalance of negotiating power also exposes poultry
growers to other risks.
For example, the considerable expense associated with building,
maintaining, and upgrading poultry growing facilities places growers at
financial risk if they are unable to realistically predict future
income under a poultry growing arrangement and meet their financial
obligations. Growers typically make investments in long-term assets--
poultry houses that can last 20 years or more, and they typically take
on long-term liabilities, in the form of 15-year mortgages, to finance
those assets. However, live poultry dealers write production contracts
for substantially shorter terms, with contract durations ranging from a
few weeks (the time needed to raise one flock) to five years.
Substantial disparities exist between the periods of time covered by
the contracts and the mortgages on poultry housing, creating
uncertainty around whether growers will be able to repay their debt and
recoup their investments, and introducing ``hold-up'' risk problems.
Hold-up is the risk growers face at the time of contract renewal
when live poultry dealers make contract renewal dependent on further
grower investments not disclosed at the time of the original
agreements.\40\ This is of particular concern in production contracts
because the capital requirements related to growing poultry are
significant and highly specialized (that is, they have little value
outside of growing poultry). As a result, growers entering the market
are tied to growing poultry to pay off the financing of the capital
investment. Growers have reported that they must accept unfavorable
contract terms because they are tied to production to pay off lenders
and they have few, if any, alternative dealers with whom they can
contract. Long term, this behavior may result in underinvestment in
broiler production. The hold-up problem is a manifestation of both
market power and incomplete information.
---------------------------------------------------------------------------

\40\ Vukina, Tom, and Porametr Leegomonchai. ``Oligopsony Power,
Asset Specificity, and Hold-Up: Evidence from the Broiler
Industry.'' American Journal of Agricultural Economics 88 (2006).
---------------------------------------------------------------------------

C. Poultry Grower Earnings and Returns on Equity

Poultry growing is an intensive capital investment endeavor where
returns can be unstable and fail to meet reasonable grower
expectations. Grower capital investment is substantial, and contract
payments received by U.S. poultry growers vary widely. Lack of
transparency in returns to grower investment can create underinvestment
and overinvestment problems. In 2011 data drawn from a nationally
representative sample of growers, the mean payment received by contract
growers was 5.77 cents per pound of farm weight. However, 10 percent of
growers earned at least 7.02 cents per pound, while 10 percent earned
less than 4.32 cents per pound.\41\ The sample data ranged across all
growers and all contract types, but research has also shown that
payments can range widely within specific contract types and within
individual grower pools, creating revenue uncertainty for growers.\42\
---------------------------------------------------------------------------

\41\ MacDonald (June 2014) Op. Cit.
\42\ Knoeber, Charles R. and Walter N. Thurman. ``Testing the
Theory of Tournaments: An Empirical Analysis of Broiler
Production.'' Journal of Labor Economics 12 (April 1994). Levy,
Armando and Tomislav Vukina. ``The League Composition Effect in
Tournaments with Heterogeneous Players: An Empirical Analysis of
Broiler Contracts.'' Journal of Labor Economics 22 (2004).
---------------------------------------------------------------------------

Perhaps even more concerning than the range of grower contract
payments are the low returns on equity for poultry operations.
According to USDA's Economic Research Service (ERS),\43\ a special
survey conducted in 2011 showed average returns on equity were negative
for operations with one to two poultry houses, and increased with the
size of the operation to a maximum of 2.7 percent among operations with
six or more houses. These figures were well below rates of return on
equity reported for manufacturing, mining, and trade corporations in
the Quarterly Financial Reports of the U.S. Census Bureau for the same
period. They were also below average rates of return on equity for
large and midsize U.S. farms.
---------------------------------------------------------------------------

\43\ MacDonald (June 2014) Op. Cit., pp. 38-40. Data from the
Agricultural Resource Management Survey--Version 4, Financial and
Crop Production Practices, 2011, and U.S. Census Bureau, 2011
Quarterly Financial Report (QFR): Manufacturing, Mining, Trade, and
Selected Service Industries. <a href="https://www2.census.gov/econ/qfr/pubs/qfr11q4.pdf">https://www2.census.gov/econ/qfr/pubs/qfr11q4.pdf</a>; accessed 1/19/2022.
---------------------------------------------------------------------------

Growers must be able to evaluate their return on equity--a measure
of a business's profitability relative to the equity invested in it--to
remain solvent. However, many factors, including monopsonistic and
oligopsonistic market structures, incomplete contracts, uncertainty
about the required level of skill and involvement, and asymmetrical
information, make calculation of return on equity difficult for
growers. The structure of the contracts themselves results in such a
wide range of potential grower financial outcomes that it is difficult
for growers to make reliable profitability

[[Page 34987]]

projections. Absent such information, growers face an ongoing risk of
deception in their contracting and operational decisions, risks which
AMS believes can be mitigated through the provision of the information
and transparency provided under this rule.

D. Asymmetrical Information

As explained earlier, one symptom of incomplete contracts is
asymmetrical information. This occurs when one party to a contract has
more and/or better critical information than the other party. For
example, because live poultry dealers determine grower pay, they have
access to records of the payments made to each grower, and have
information regarding the complete range of payments across growers
with birds delivered for processing in each week. The individual
grower--both existing and prospective--however, lacks the same ready
access to this information. Additionally, dealers have information
related to (and also control) strategic decision making that may
include placement frequency, stocking densities, and input quality and
distribution--factors that influence the weight and performance
elements that comprise individual flock payments and influence grower
payments in the long term. It is unlikely that poultry growers are
privy to information about the range of grower payments or dealers'
strategic decision making. As a result, they lack key information
needed to make informed decisions with respect to the range of
financial risks they face.
Prospective growers can draw upon information provided by poultry
specialists in state cooperative extension services and by lenders, but
those sources do not have live poultry dealers' internal data on the
full range of payments or their frequencies and, as a result, typically
base financial modeling and advice on average levels of payments
received by growers, not on the full range of payments.\44\ Existing
growers know what they have been paid, and may elicit further
information from other growers, but likewise lack complete integrator
information on the range of grower payments, making it difficult for
them to accurately project future earnings based on the past experience
of similarly situated growers and, as such, to gauge their ability to
meet financial obligations.
---------------------------------------------------------------------------

\44\ See, for example, Doye, Damona Grace, et al. ``Broiler
Production: Considerations for Potential Growers'' Oklahoma
Cooperative Extension Service, (March 2017); Rhodes, Jennifer and
Jonathan Moye. ``Broiler Production Management for Potential and
Existing Growers'', University of Maryland Extension, (October
2017); and Cunningham, Dan L., and Brian D. Fairchild. ``Broiler
Production Systems in Georgia, Costs and Returns Analysis 2011-
2012.'' University of Georgia Cooperative Extension (June 2011).
---------------------------------------------------------------------------

Some live poultry dealers provide pro forma income estimates to
prospective growers and lenders. Grower advocate groups have complained
these estimates are generally based on simple ``average pay''
projections, which are insufficient given fluctuations in grower
payments, particularly under the tournament system.\45\ AMS has
observed these projections lack standardization making it difficult for
growers to compare estimates among multiple dealers. Additionally, the
assumptions underlying the projections such as number of placements,
stocking densities, target weight are subject to dealer discretion and
in many cases the estimates themselves are expressly disclaimed in the
production agreement.
---------------------------------------------------------------------------

\45\ ``A Poultry Grower's Guide to FSA Loans,'' Rural
Advancement Foundation International, July 2017, available at
<a href="https://www.rafiusa.org/blog/a-poultry-growers-guide-to-fsa-loans/">https://www.rafiusa.org/blog/a-poultry-growers-guide-to-fsa-loans/</a>.
---------------------------------------------------------------------------

These risks are particularly acute when growers must make key
investment decisions for their operation, such as whether or not to
enter the poultry business and whether or not take on or invest in new
or expanded facilities, all of which can be expected to involve
incurring debt. AMS believes that the provision of the information in
this rule will reduce the risks of these information asymmetries and
enable growers to improve their decision-making and risk-management.
USDA's Farm Services Agency (FSA), which manages a loan guarantee
program, has also recognized repayment reliability concerns related to
informational asymmetries and their effect on poultry grower payments
and total revenues.
In order to reduce FSA's exposure under the loan guarantee program,
the FSA Handbook requires the following of poultry production contracts
in order to assess their ``dependability.'' \46\ Contracts must:
---------------------------------------------------------------------------

\46\ USDA Farm Service Agency, Guaranteed Loan Making and
Servicing 2-FLP (Revision 1) pp. 8-86 (October 2008). <a href="https://www.fsa.usda.gov/internet/FSA_File/2-flp.pdf">https://www.fsa.usda.gov/internet/FSA_File/2-flp.pdf</a>; accessed 1/3/2022.

<bullet> be for a minimum period of 3 years
<bullet> provide for termination based on objective ``for cause''
criteria only
<bullet> require that the grower be notified of specific reasons for
cancellation
<bullet> provide assurance of the grower's opportunity to generate
enough income to ensure repayment of the loan by incorporating
requirements such as a minimum number of flocks per year, minimum
number of bird placements per year, or similar quantifiable
requirements.

Enhanced and more reliable transparency in the poultry production
contracting process is likely to assist FSA's in effectuating the
mandates under the loan guarantee program as set forth in its handbook.

E. Poultry Grower Concerns

In 2010, USDA held a series of workshops in conjunction with the
Department of Justice to hear from producers about concentration and
trade practice issues in Agriculture. Normal, Alabama, hosted one such
session with an emphasis on the poultry industry. Globally, growers
complained that their success or failure is dependent on factors
controlled by their integrators. Further, growers are troubled by the
lack of choice among integrators in many regional relevant markets,
which further enhances the bargaining position of integrators.\47\
Grower public comments at the workshop were consistent with numerous
comments submitted to USDA on the 2010 and 2016 GIPSA rules and
identified specific areas of concern in the poultry industry.
---------------------------------------------------------------------------

\47\ See Domina, David A. and Robert Taylor. ``The Debilitating
Effects of Concentration Markets Affecting Agriculture,'' Drake
Journal of Agricultural Law 15 (May 2010): 61-108. See also Leonard,
Christopher, The Meat Racket (2014).
---------------------------------------------------------------------------

Growers expressed concerns about contract dependency, uncertainty
of pay, and informational asymmetries related to farm revenues and
debt. Poultry growers have indicated they lack control over and even
information about certain crucial production factors controlled by live
poultry dealers, such as the anticipated frequency and density of flock
placements and bird target weight under poultry growing arrangements,
factors that heavily influence grower payments on an individual flock
basis and over the long term.\48\
---------------------------------------------------------------------------

\48\ Transcript, United States Department of Justice, United
States Department of Agriculture, Public Workshops Exploring
Competition in Agriculture: Poultry Workshop May 21, 2010; Normal,
Alabama.
---------------------------------------------------------------------------

Growers cited the level of control and discretion reserved to
integrators under their contracts, remarking how discretionary
decisions related to flock placements, housing specifications,
tournament grouping,\49\ and other production factors can significantly
affect grower revenue and profitably. Many growers were worried that
contract terms did not cover the time required to repay the debt on
their farms, noting that additional capital investments, such as those
necessitated

[[Page 34988]]

by integrator's housing specifications, can plunge growers into further
debt without assurances of adequate or stable returns. Growers
indicated they do not have adequate information with which to assess
original and additional capital investments because pay rates alone are
insufficient for long-term revenue estimates without assumptions
related to integrator discretionary production decisions.\50\ Concerns
have also been raised regarding the use of deficient and unreliable
``pro forma'' financial estimates during the contracting process.
---------------------------------------------------------------------------

\49\ The effect of tournament groupings, or league composition,
is an area requiring additional exploration and research. It is not
directly addressed in this proposal.
\50\ Transcript, United States Department of Justice, United
States Department of Agriculture, Public Workshops Exploring
Competition in Agriculture: Poultry Workshop May 21, 2010; Normal,
Alabama.
---------------------------------------------------------------------------

Finally, poultry growers have complained to USDA about being
prohibited by dealers from asserting their rights under the current
regulations to discuss poultry growing contracts with government
representatives, family members, lenders, and other business
associates. Some growers allege they have been threatened or retaliated
against for asserting those rights.
As explained in section II.A., AMS believes that poultry growing
arrangements are often incomplete contracts that may be deceptive when
omissions or inadequate descriptions of key terms mislead, camouflage,
conceal, or otherwise inhibit growers' ability to assess the financial
feasibility and expected value of investment. For example, for a grower
to estimate future revenues, it is necessary for the grower to know how
many flocks the dealer will place with the grower over a given time
period. When contract terms do not establish the number of flocks a
grower will receive during that time period, the grower could be misled
or deceived into believing he will receive an optimistically high
number of placements, which might increase the grower's willingness to
contract with the dealer. This risk is particularly acute if the
financial statements or estimates provided to the grower paint only the
most optimistic picture possible regarding the returns that may be
possible under complex and opaque payment arrangements, such as the
commonly used tournament ranking system, rather than the range of
realistically expected outcomes. If poultry contracts contain more
material terms relating to revenue over the life of the agreement, we
believe the potential for deception is reduced significantly.
AMS considers this imbalance of information, or ``asymmetrical
information,'' as described in the previous section, an important
consideration for this rulemaking. We recognize that neither dealers
nor growers can predict market conditions far into the future. Yet
given the substantial investment from the grower, together with the
greater ability for dealers to monitor market trends, adjust
contracting, and otherwise hedge risks, we believe these upfront and
ongoing information asymmetries could be effectively mitigated through
the disclosure regime that will be outlined later in this rule.
AMS believes that by providing critical information that addresses
the risks that growers face, the rule would encourage greater certainty
and confidence among growers, encourage investment, and enhance the
overall competitive market for grower services. As for growers' ability
to assert their rights without fear of retaliation, we note that the
current regulations, at 9 CFR 201.100(b), already require live poultry
dealers to allow poultry growers to discuss the terms of their
contracts with government agencies, family members, and business
associates and advisors, regardless of confidentiality provisions in
the contracts. However, it may be appropriate to shed more light on
those rights. AMS believes the proposed transparency enhancements would
further aid growers in identifying illicit conduct of this type.

III. Poultry Grower Pay Systems

As discussed in section I.C.3.--Poultry Grower Compensation, the
majority of poultry growers are paid on an individual flock basis,
where the calculation for grower payments can be expressed as: Farm
Weight (in pounds) x Feed Conversion (in dollars) = Grower Pay. Farm
weight is a nearly universal measure among all poultry grower pay
systems; however, the metrics and formulas for determining feed
conversion vary among pay systems and between integrators.
Poultry grower pay systems can be categorized as either ranking or
non-ranking. The most common non-ranking pay system is called ``fixed-
performance.'' Pay systems that rank growers are called ``poultry
grower ranking systems'' or ``tournaments.'' In this section we focus
on the characteristics of--and challenges associated with--tournament
pay systems, but we begin with a brief description of fixed-performance
pay systems for comparison.

A. Fixed-Performance Pay Systems

Under fixed-performance production contracts, growers are paid a
base rate for each animal or for the farm weight delivered to the
processor. These contracts generally adjust payments based on fixed
performance standards. For example, farmers with lower animal mortality
or higher conversion of feed to live weight might receive higher pay.
These are called fixed performance contracts because although
compensation may fluctuate, the performance elements are tied to fixed
standards.\51\ In contrast, under grower ranking pay systems,
performance elements are relative standards tied to the performance of
other growers.
---------------------------------------------------------------------------

\51\ Tsoulouhas, Theofanis, and Tomislav Vukina. ``Regulating
Broiler Contracts: Tournaments Versus Fixed Performance Standards.''
American Journal of Agricultural Economics 83 (2001).
---------------------------------------------------------------------------

B. Tournament Pay Systems

The majority of growers producing poultry under production
contracts are paid under a poultry grower ranking or ``tournament'' pay
system.\52\ Under poultry grower ranking systems, the contract between
the live poultry dealer and the poultry grower provides for payment to
the grower based on a grouping, ranking, or comparison of poultry
growers delivering poultry to the dealer during a specified period. In
a simplified example, the live poultry dealer places flocks with ten
growers under contract to deliver the same size of finished poultry to
the dealer's processing plant at the end of a specified growout period.
Upon harvest, each grower's performance (e.g., farm weight and feed
conversion) is determined. The dealer then compares individual grower
results against average results for all growers in the group, and ranks
individual growers according to their relative performance within the
group of ten growers. Grower base pay rate is adjusted by the grower's
deviation from average within the tournament grouping for that specific
growout period. For example, a contract-based pay rate of $.06 per
pound might be adjusted to $.0725 for an above average grower, while a
below average grower may be paid $.048.
---------------------------------------------------------------------------

\52\ MacDonald (June 2014) Op. Cit. See footnote 20 on page 27
citing ARMS data from 2011 that reported 97% of broilers are grown
under contract, with 93% of contracts tied to relative performance.
---------------------------------------------------------------------------

Payments under tournament contracts still vary with flock mortality
and feed conversion, but in tournament contracts, the performance
elements are not fixed targets. The performance elements are compared
to average performance results from a tournament group, which is group
of growers delivering poultry to the plant during the same time period
(usually within a week). Growers who exceed the group's average
performance get higher payment, while growers who

[[Page 34989]]

fall short of the group average receive lower pay. The grower payment
equation's feed conversion variable is modified by its deviation from
average performance, and a specific grower's pay varies with his/her
ranking against the average. Grower pay rates vary depending on the
performance of other growers, even if a specific grower's performance
remains unchanged or even improved compared to their performance in
previous growout periods.

IV. Poultry Grower Ranking Systems

A. Tournament Settlements

9 CFR 201.100(d) and 9 CFR 201.100(f) are important parts of the
existing tournament payment disclosure regime under the Packers and
Stockyards Act. This proposal builds on the existing disclosure
concepts by incorporating new transparency into the distribution of
inputs, which is an area of particular concern to growers.
Currently, 9 CFR 201.100(d) requires all live poultry dealers to
prepare and furnish a settlement sheet to a poultry grower at the time
of settlement. Under that regulation, the settlement sheet must contain
all information necessary to compute the grower's payment, including,
if applicable, the number of birds marketed, the total weight and
average weight of the birds, and the payment per pound. Further, Sec.
201.100(f) requires live poultry dealers who pay growers under a
tournament system to furnish growers with a grouping or ranking sheet
at the time of settlement that shows the grower's precise position in
the grouping or ranking sheet for that period. Currently, the grouping
or ranking sheet need not disclose names of other growers, nor the
housing specifications for each tournament participant, but must show
the actual figures used to compute each grower's position within the
ranking for that period. Neither section currently requires the live
poultry dealer to provide information about the distribution or nature
of integrator inputs among settlement participants.
The tournament ranking sheet required under Sec. 201.100(f)
provides growers with numeric data comparing their performance and the
performance of other growers in the tournament. While the numeric data
describes the relationship between grower performance, as assessed by
the integrator, and settlement payments, its value is limited without
information about the distribution of integrator inputs among
tournament participants. Poultry grower commenters on the 2010 and 2016
GIPSA rules stated that without knowing how inputs they receive compare
to inputs provided to other growers within their tournaments, growers
cannot determine whether differences in pay are due strictly to grower
skill or to other factors beyond their control.

B. Tournament Payments as a Measure of Grower Skill, Effort, and
Innovation

In comments submitted to USDA on the 2010 and 2016 GIPSA rules,
live poultry dealers suggested that tournament systems benefit poultry
growers by offering financial incentives and rewards to growers who
invest time and effort into their poultry growing operations. They
asserted that the competition inherent in tournaments fosters grower
innovation and increased efficiency, and rewards those growers who are
the most efficient and provide the best services. They also stated that
tournament pay systems reward above-average growers that are willing to
take risks or improve their production systems. One poultry processing
company stated that contract broiler growers are paid for their
services based on a formula that rewards efficiency, ingenuity, and
good animal welfare and animal husbandry practices.
Comments from some poultry growers and others associated with the
industry concurred with those of processors, indicating that the
opportunity to earn higher compensation for superior performance under
tournament systems motivates above-average growers to work hard, invest
in their facilities, and utilize innovative technology.
At the same time, other growers dispute this. Indeed, growers often
comment on wide swings in grower rankings from flock to flock, where
the same individual grower ranks high in one tournament and much lower
in another. One available analysis confirms significant volatility in
grower rankings from flock to flock,\53\ This suggests that while
grower experience and skills can lend to consistently successful
individual flock performance, a grower's relative success in
tournaments might be attributed to other factors.
---------------------------------------------------------------------------

\53\ Taylor, C. Robert, and David A. Domina, ``Restoring
Economic Health to Contract Poultry Production.'' Report prepared
for the Joint U.S. Department of Justice and USDA/GIPSA Public
Workshop on Competition Issues in the Poultry Industry (May 2010).
---------------------------------------------------------------------------

Input variability is commonly cited by grower commenters as a key
explanation for ranking volatility. We discuss the distribution of
inputs and the effects of input variability on tournament rankings and
grower payments in the following sections.

C. Distribution of Inputs Among Tournament Participants

Grower experience and skill, the technical specifications and
relative sophistication of the housing, and other factors, such as the
makeup of tournament groupings or inconsistent grower effort, may all
affect performance. In this section, we explain how integrator
decisions about inputs provided to tournament growers can also impact
growers' relative performance.
Under the tournament system, dealers control the source of inputs
and the distribution of those inputs to growers. In section I.C.4.--
Live Poultry Dealer Inputs--AMS has provided evidence that the range of
inputs is nonhomogeneous. The range of inputs is selected to satisfy
customer or product requirements, as well as efficiency in the
slaughter process, presumably at the lowest costs. Input distribution
has not been studied extensively, and little information is available
in the public domain. In response to prior USDA rulemaking efforts,
dealers have denied or downplayed the significance of input variability
and its effect on bird performance. The existence of non-homogeneity
and the persistence of grower complaints raise questions about dealer
input allocation practices and the extent to which tournament parity
and cost efficiency are balanced, or whether other factors may also be
at play.
For example, if a complex has three breeder farms with different
aged flocks, it may be costly or even impracticable for integrators to
evenly distribute chicks from the three breeder flocks in identical
ratios to all settlement participants. Similar cost considerations
might play a role in distribution where breed and sex variation are
present. In another example, supply considerations may play a role in
stocking density differences among settlement participants. As a
result, growers settled together could be allocated flocks with some
level of variance in attributes. None of those input variances would be
materially affected by incentives for uniformity of product or
processing plant efficiency; they would be premised cost efficiencies.

D. Input Variability and Grower Payment

Tournament payments are based on relative measurements, including
poultry mortality, morbidity, feed use efficiency, and growth rate,
among tournament participants. As discussed earlier, the attributes of
various integrator-controlled inputs can affect those measurements.
Therefore,

[[Page 34990]]

variability between the inputs provided to growers in a tournament can
affect relative outcomes. Here we briefly review those inputs and
explain how uneven distribution of inputs may affect tournament grower
rankings and payments.
1. Stocking Density: Variability in stocking densities among
poultry growers in settlement pools are likely to result in farm weight
and feed conversion disparities among settlement participants. If one
or more growers in a tournament receive flocks with fewer birds than
what would be optimal, and those flocks do not achieve optimal feed
conversion efficiency, those growers may not rank as high as their
tournament competitors who receive flocks of optimal stocking
density.\54\ Thus, the input variability has the potential to affect
tournament grower payments.
---------------------------------------------------------------------------

\54\ Stocking density is a function of the desired weight of
uniformly sized birds at harvest. A placement with a specified
number of smaller birds would have the same density as a placement
with the same number of larger birds. Smaller birds would just take
somewhat longer to get there.
---------------------------------------------------------------------------

2. Breed Ratios: As described in section I.C.4.b., different
poultry breeds convert feed to weight gain with varying efficiency.
Thus, differences between the breeds or ratios of breeds of poultry
flocks placed with individual growers within a tournament group may
ultimately affect each grower's relative performance and tournament
ranking. Depending on the specific breeds involved, USDA has connected
variances in the distribution of poultry breeds or breed ratios with
farm weight disparities,\55\ affecting grower pay.
---------------------------------------------------------------------------

\55\ Tyson Farms, Inc. 71 Agric. Dec. 1065, 1160 (U.S.D.A.
2012).
---------------------------------------------------------------------------

3. Gender ratios: As explained in section I.C.4.c., The majority of
integrators use straight-run (not sorted by gender) flocks to supply
farms. AMS would not view the placement of randomized straight-run
flocks as an input variability if all tournament growers received
randomized straight-run flocks, since the ratio of males to females in
each flock would be randomized and not dictated by the integrator.
However, integrators placing sexed flocks, or integrators supplementing
straight-run flocks with sexed flocks, may create input variability in
the distribution of birds that could result in farm weight and feed
conversion disparities.
4. Breeder Flock Age: As discussed in section I.C.4.d., the age of
breeder flocks is correlated with egg and chick size, mortality, and
eventual weight gain. Variability between the ages of breeder flocks
producing the young poultry placed with different growers in a
tournament may result in farm weight and feed conversion disparities at
the end of growout, which may impact the rankings and payments to
individual growers in that tournament.
5. Breeder Flock Health: Placing birds from breeder flocks of
varying health with tournament participants may affect each flock's
performance and thus each grower's ranking and pay. Other factors, such
as variations between facility sanitation practices and performance may
exist among breeder facilities within the same complex, and may impact
progeny growout performance, creating an input variability when poultry
sourced from multiple breeder farms are settled together.
6. Feed Disruptions: As described in section I.C.4.f., bird growth
may be affected by feed disruptions (where poultry go without feed for
a certain length of time), possibly resulting in less farm weight,
which affects grower tournament rankings and payments. Feed disruptions
for any cause, if they do not affect all growers equally, may
constitute an input disparity that can affect grower ranking and pay.
7. Medications: The integrator may find it necessary to supply one
or more flocks with veterinary medicines or supplements during flock
growout. Such treatments, when provided on a flock-by-flock basis, may
impact relative flock performance and grower pay.
As described in the previous section, an integrator's input
allocation decisions are impacted by cost efficiencies that may be
inconsistent with individual growers' interests, including risk
management and earnings maximization. But variability in integrator-
provided inputs among settlement participants can ultimately influence
settlement rankings and payments. Thus, tournament participants prefer
some level of parity in input distributions, or at least mitigation of
any disparities, in order to evaluate whether grower compensation is
related to grower management and skill or correlated with ``favorable''
inputs.

E. The Need for Transparency

Input variability among settlement participants have long been a
point of contention between growers and integrators because growers are
not involved in input distribution decisions, and any balancing between
cost efficiency and parity is not transparent. With respect to this
input variability, growers have repeatedly complained in public forums
and to USDA of retaliation, discrimination, and other disputes arising
in connection with distributions of inputs, including in ways that
result in significant economic harm to growers.\56\
---------------------------------------------------------------------------

\56\ See, e.g., Transcript, United States Department of Justice,
United States Department of Agriculture, Public Workshops Exploring
Competition in Agriculture: Poultry Workshop May 21, 2010, Normal,
Alabama; Leonard, Christopher, The Meat Racket (2014).
---------------------------------------------------------------------------

AMS has not identified research regarding whether variability in
inputs between tournament growers affects grower outcomes. However,
some existing research establishes the effects of certain inputs on
poultry growth and feed conversion.
We believe growers' assertions regarding the connection have merit.
AMS is aware that integrators collect input information for private
use,\57\ although we do not know whether it includes information about
how inputs are distributed among individual growers. Nevertheless,
growers complain that this information, which could be useful to them
in flock management, is not generally provided to them.
---------------------------------------------------------------------------

\57\ For example, integrators may contract with Agristats, a
chicken, turkey, commercial egg, and swine industry research
company, to collect input information and compare such information
against similar organizations in the industry. Agri Stats, Inc.
Partnership and Services, <a href="https://www.agristats.com/partnership">https://www.agristats.com/partnership</a>.
---------------------------------------------------------------------------

At the 2010 Normal, Alabama, workshop referenced earlier, contract
poultry growers further raised significant concerns regarding the
design and operation of tournament systems. Commenters asserted that
the high degree of integrators' control over the inputs, the reliance
that growers have on the inputs for outcomes under the system, and the
opacity of the tournament calculations fostered a range of risks,
including risks relating to deception. These include the inability to
verify the accuracy of payments, the inability to measure and manage
risks, and the ways in which tournament systems can mask or facilitate
hard-to-detect forms of discrimination or retaliation for disputes
arising under the poultry growing arrangement.
These concerns reflect similar issues of market power and
information asymmetry discussed earlier. Where integrators have made
business decisions to procure and distribute inputs in a manner that
most suits their cost structure and business strategies, poultry
growers have limited- or no ability to negotiate, including for
information that would enable them to avoid, mitigate, or manage the
risks arising from the integrator's decisions. Growers may or may not
be able to discern from a visual inspection of the flocks certain
important information,

[[Page 34991]]

such as breeder age, to which the integrator is privy. Other
information, such as bird sex, may be more readily available to the
integrator than to the grower.
Their lack of information at the time of placement about the
specific inputs delivered to growers exposes them to the performance
risks described in section IV.D. associated with the variability of
those inputs. Those performance risks may manifest in in tournament
ranking. Similarly, the absence of input distribution information at
the time of settlement undermines growers' ability to manage their
operations to address those performance risks. In both cases, growers
are disadvantaged in their performance by a lack of information outside
of their control. Conversely, the ability of growers to monitor and
measure input differences is especially important for mitigating risks
relating to the accuracy of payments and the ways in which tournament
systems may mask or facilitate hard-to-detect forms of discrimination
or retaliation for disputes.\58\
---------------------------------------------------------------------------

\58\ One example of deception risk is the alleged practice of
dealers offering more lucrative contracts to attract new growers but
then reducing the pay once the grower is secured and in debt,
(Taylor and Domina 2010; Vukina and Leegomonchai 2006). See also
Vukina, T. 2001. Vertical integration and contracting in the US
poultry industry. Journal of Food Distribution Research 81: 61-74.
---------------------------------------------------------------------------

AMS believes that tournament growers need information about input
distribution--particularly at the stage where the input is provided--
when they could apply, to the extent possible, their experience and
skills to the adjustment of flock management as necessary in response.
For example, a grower is informed he has received a salmonella infected
broiler flock, which will present with loose, runny stools that can
cause floors to cake quickly, leading to burnt paws and increased
coccidiosis. A grower aware of the condition can manage the flock
through use of migration fences early in flock and with increased
ventilation to remove excess ammonia and to help dry floors. These
management adjustments may be departures from normal growout procedure,
but could lower mortality, decrease condemnations, and result in higher
farm weights and feed efficiency. Thus, improved outcomes would benefit
growers and integrators alike.
Further, growers seek transparency regarding flock input
distribution among tournament participants so they can individually
assess the relationships between input variability, grower management
and skills, and tournament payments. Such information is also
particularly important, when shown together with housing
specifications, for growers to assess the relative value and necessity
of making additional capital investments. Put another way, failure to
make this information available to growers puts them at risk of making
very expensive investments with very little insight into their value
and risks involved.
For both at placement and settlement disclosures, growers have
expressed a mistrust of live poultry dealers when information about
flock placements is not transparent. Improving transparency is intended
to reduce concerns relating to input distribution and may help
establish a higher degree of trust in the integrity of the marketplace.
Finally, relative ranking systems (tournament) premised on grower
skill, effort, and innovation should measure and compensate based upon
those merits. Pay systems highly correlated with individual input
variability may be inconsistent with the merit premise and demonstrate
misrepresentations and deception in the operation of tournament pay
systems.

V. Proposed Regulations

AMS proposes to address concerns related to market power imbalance
and asymmetrical information in poultry grower contracting by revising
the regulations at 9 CFR part 201 that effectuate the Packers and
Stockyards Act. AMS intends the proposals to better balance the
quantity, quality, and type of critical information poultry growers,
prospective poultry growers, and live poultry dealers have as they
enter into and operate under poultry growing arrangements. AMS expects
that these proposed rules would improve transparency and reduce the
risk of deception in the contracting process. This section provides
detailed descriptions and explanations for the proposals.

A. Definitions

Section 201.2--Terms defined--of 9 CFR part 201 provides
definitions for terms used in the regulations. AMS proposes to revise
Sec. 201.2 by removing the paragraph designations within the section,
reorganizing the definitions alphabetically, and adding definitions for
new terms used in the proposed rule. Proposed additions to the list of
terms defined in Sec. 201.2 are described as conforming changes in
connection with the proposed regulatory changes described below.
Additionally, to ensure a common understanding of the use and
meaning of certain terms already used in the regulations and in the
proposed regulatory revisions, AMS proposes to incorporate into Sec.
201.2 the statutory definitions for those terms. Specifically, the term
poultry grower means any person engaged in the business of raising and
caring for live poultry for slaughter by another, whether the poultry
is owned by such person or by another, but not an employee of the owner
of such poultry. The term live poultry dealer means any person engaged
in the business of obtaining live poultry by purchase or under a
poultry growing arrangement for the purpose of either slaughtering it
or selling it for slaughter by another, if poultry is obtained by such
person in commerce, or if poultry obtained by such person is sold or
shipped in commerce, or if poultry products from poultry obtained by
such person are sold or shipped in commerce. The term commerce means
commerce between any State, Territory, or possession, or the District
of Columbia, and any place outside thereof; or between points within
the same State, Territory, or possession, or the District of Columbia,
but through any place outside thereof; or within any Territory or
possession, or the District of Columbia. Finally, the term poultry
growing arrangement means any growout contract, marketing agreement, or
other arrangement under which a poultry grower raises and cares for
live poultry for delivery, in accord with another's instructions, for
slaughter.
AMS invites comments on proposed additions to the list of
definitions, including those described later in this section. Please
explain fully all views and suggestions, supplying examples and data or
other information to support your views where possible.

B. Disclosure

To address concerns identified in the section on Poultry Growing
Arrangements earlier in this document, including industry concerns
related to dealer transparency in poultry growing arrangements, AMS
proposes to amend Sec. 201.100--Records to be furnished poultry
growers and sellers. Currently, 9 CFR 201.100 describes the documents
that live poultry dealers must provide to poultry growers within
certain timeframes. Paragraph (a) of Sec. 201.100 requires a dealer to
provide the grower with a true written copy of the offered poultry
growing arrangement on the date the dealer provides poultry housing
specifications to the grower. Paragraph (b) requires live poultry
dealers to allow growers to discuss the terms of poultry growing
arrangement offers with a Federal or State agency, the growers' legal
and financial advisors and lenders, other growers for the same dealer,
and

[[Page 34992]]

family members or other business associates with whom growers have
valid business reasons for consulting about the offered poultry growing
arrangements. Paragraph (c) specifies required contents of the poultry
growing arrangement, including contract terms and information about
payment calculations and performance improvement plans. Paragraph (d)
requires dealers to furnish growers with settlement sheets and
supporting documents showing how grower pay is calculated. Paragraph
(e) requires dealers to obtain USDA condemnation or grading
certificates for poultry and to provide copies to growers at
settlement. Paragraph (f) requires dealers to provide growers in a
poultry grower ranking system copies of grouping or ranking sheets that
show growers their precise positions within the grouping or ranking for
that period, as well as the actual figures rankings are based upon.
Paragraph (g) requires dealers who purchase live poultry to provide
detailed purchase invoices, including applicable USDA condemnation or
grading certificates, to poultry sellers at the time of settlement.
Finally, paragraph (h) requires dealers to provide notices regarding
termination or non-renewal of poultry growing arrangements to affected
growers at least 90 days before termination. Under paragraph (h),
dealers must provide the reason for a termination, the effective date
of the termination, and information about grower appeal rights with the
dealer. Further, dealers must provide the opportunity for growers to
notify dealers in writing at least 90 days before the scheduled
termination of a poultry growing arrangement of the grower's intent to
terminate the arrangement.
Specifically, AMS proposes to amend Sec. 201.100 by revising
paragraph (a); redesignating paragraphs (b) through (h) as paragraphs
(h) through (n), respectively; moving current paragraph (f) to a new
regulatory section that addresses poultry grower ranking systems
specifically; adding new paragraphs (b) through (g); and revising
redesignated paragraph (i).
Proposed revisions to Sec. 201.100(a) would modify the heading to
read ``Disclosures and records to be furnished poultry growers and
sellers'' and would require the dealer to provide the prospective or
current poultry grower with the Live Poultry Dealer Disclosure Document
(the Disclosure Document), as described in proposed new paragraph (b)
of the section, in addition to the true written copy of the poultry
growing arrangement, under three different scenarios. A proposed
conforming change to Sec. 201.2 would define the term prospective
poultry grower to mean a person or entity with whom the live poultry
dealer is considering entering into a poultry growing arrangement. AMS
would add this definition to distinguish between a current or existing
poultry grower who has previously entered into a poultry growing
arrangement with the dealer and a grower who has not signed a contract.
The proposed requirements for live poultry dealers are somewhat
different depending on the status of growers with whom they are
working.
Under the first scenario, provided in proposed new Sec.
201.100(a)(1), a dealer seeking to renew, revise, or replace an
existing poultry growing arrangement (or newly establish a poultry
growing arrangement) that does not contemplate modifications to
existing housing specifications would be required to provide both the
poultry growing arrangement and the Disclosure Document at least seven
days before the dealer executes the poultry growing arrangement. This
proposal is intended to give growers adequate time to consider all the
information provided and consult with others as needed before
committing to the new, revised, or replacement poultry growing
arrangement. Because this scenario involves growers already familiar
with their dealers, and because in this scenario the contract renewal
does not involve additional capital investment, we believe seven days
would provide time for adequate review. AMS proposes to exempt certain
small businesses from this requirement, as described in the discussion
about proposed new Sec. 201.100(e)below.
AMS proposes a conforming change to Sec. 201.2 to add a definition
for housing specifications to mean a description of--or document
relating to--a list of equipment, products, systems, and other
technical poultry housing components required by a live poultry dealer
for the production of live poultry. Live poultry dealers commonly
develop multiple housing specifications. Accordingly, by defining this
term, AMS does not intend to limit live poultry dealers to a single
housing specification. Another proposed definition would define Live
Poultry Dealer Disclosure Document to mean the complete set of
disclosures and statements that the live poultry dealer must provide to
current or prospective poultry growers.
Under a second scenario, as described in proposed new Sec.
201.100(a)(2), a dealer seeking to enter into a poultry growing
arrangement that would require the grower to make an original capital
investment to comply with the dealer's housing specifications would be
required to provide the grower with a true written copy of the poultry
growing arrangement, the housing specifications, the Disclosure
Document, and a letter of intent simultaneously. Because the Disclosure
Document and letter of intent would be required to accompany the
housing specifications, growers would have more information with which
to assess economic and financial considerations prior to obtaining
financing for the original capital investment. This proposal is
intended to give the grower and their lender adequate time to consider
all the information provided and consult with others as needed, and to
provide assurance with which to move forward with the necessary
financing. A letter of intent would signal to the prospective poultry
grower and their prospective lender that the dealer's contract offer is
earnest and that the preliminary terms of the agreement should be
assessed to determine practical and financial feasibility. Further,
having the letter of intent would allow the poultry grower to discuss
proposed or required upgrades to existing housing specifications with
lenders and other advisors while considering whether to make those
modifications and financial investments. Growers, working with their
lenders, can establish an appropriate period to review and assess the
disclosure document and letter of intent prior to undertaking the
investment.
A proposed conforming change to Sec. 201.2 would add a definition
for letter of intent to mean a document that expresses a preliminary
commitment from a live poultry dealer to engage in a business
relationship with a prospective poultry grower and that includes the
chief terms of the agreement.
Another proposed revision to Sec. 201.2 would add a definition for
original capital investment to mean the initial investment for
facilities used to grow, raise, and care for poultry or swine. The
proposed definition for original capital investment uses similar
language as the existing definition for additional capital investment,
and is intended to help differentiate between situations where a new or
prospective grower would be required to make an initial capital
investment for poultry housing in order to become a poultry grower and
where a current grower has already made a capital investment related to
poultry housing requirements.
Finally, under the third scenario, as described in proposed new
Sec. 201.100(a)(3), a live poultry dealer seeking to offer or impose
modifications to existing housing specifications that

[[Page 34993]]

could reasonably require the current poultry dealer to make an
additional capital investment would be required to provide the grower
simultaneously with a true written copy of the poultry growing
arrangement, modified housing specifications, the Disclosure Document,
and a letter of intent. AMS expects the majority of growers will seek
financing for additional capital investments, and the simultaneous
production of the three documents is designed to (1) provide growers
with improved information with which to assess the new capital
investment, and (2) allow growers to establish appropriate timelines
for contemplating the investment. Additional capital investment, as it
pertains to poultry production, is defined in the current regulations
at Sec. 201.2(n) as a combined amount of $12,500 or more per structure
paid by a poultry grower over the life of the poultry growing
arrangement beyond the initial investment for facilities used to grow,
raise, and care for poultry. The term includes the total cost of
upgrades to the structure, upgrades of equipment located in and around
each structure, and goods and professional services that are directly
attributable to the additional capital investment. The term does not
include costs of maintenance or repair.
The requirement in current Sec. 201.100(a) to provide true written
copies of the poultry growing arrangement, whether to establish a new
arrangement or to renew, revise, or replace an existing arrangement,
helps improve transparency in the new or ongoing relationship between
the live poultry dealer and the prospective or current poultry grower,
which mitigates the information asymmetries and other deception-related
concerns discussed above. AMS would retain that requirement under the
proposed rule. AMS believes providing written documents helps ensure
that both parties have the opportunity to read and understand all the
terms of the poultry growing arrangement. Further, the requirement in
current Sec. 201.100(a) to provide a copy of the poultry growing
arrangement at the same time housing specifications are disclosed
ensures transparency about the dealer's expectations regarding the
grower's responsibility under the arrangement. Under the proposed
revisions to Sec. 201.100(a), and in the three scenarios described
above, the required documents and the timelines for providing them are
determined according to whether new or revised housing specifications
are involved.
In each of the three scenarios presented above, the live poultry
dealer must provide the grower with the Disclosure Document. The
Disclosure is a set of documents prepared by the live poultry dealer.
AMS believes providing the Disclosure Document to growers along with
the true written copy of the poultry growing arrangement, housing
specifications, and letter of intent, where applicable, would help
mitigate the asymmetric information problem described earlier in this
document by giving growers more information with which to assess
poultry growing arrangements and efficiently allocate resources.
The contents and format of the Disclosure Document cover pages
would be provided in proposed new Sec. 201.100(b)--Prominent
disclosures. Proposed Sec. 201.100(b) would specify the elements to be
included with the cover pages of the Disclosure Document, including
basic information about the live poultry dealer, key points in the
poultry growing arrangement, and precise language for certain notices
the dealer must make to the grower. In conjunction with the requirement
to include specific language in the Disclosure Document, AMS is
requesting Office of Management and Budget (OMB) approval of a new
information collection, as described more fully in the Paperwork
Reduction Act section of this proposed rule. AMS is proposing to
provide a downloadable and printable electronic form containing the
required language described in proposed Sec. 201.100(b). The proposed
form is for the use of live poultry dealers and is intended to reduce
the burden of creating such a form and simplify compliance with the
requirement to make certain notifications to poultry growers.
Proposed new Sec. 201.100(b)(1) would require the Disclosure
Document cover page to include the title ``LIVE POULTRY DEALER
DISCLOSURE DOCUMENT'' in capital letters and bold type. Proposed Sec.
201.100(b)(2) would require the live poultry dealer to list their name,
type of business organization, principal business address, telephone
number, email address, and if applicable, primary internet website
address. Proposed Sec. 201.100(b)(3) would require the dealer to
specify the length of the term of the poultry growing arrangement.
Including this information at the front of the Disclosure Document
clearly identifies for growers the live poultry dealer and the
associated poultry growing arrangement under consideration.
Under proposed Sec. 201.100(b)(4), the live poultry dealer would
be required to include a notice to the grower that, ``The income from
your poultry farm may be significantly affected by the number of flocks
placed on your farm each year, the stocking density or number of birds
placed with each flock, and the target weight at which poultry is
caught. The poultry company may have full discretion and control over
these and other factors. Please carefully review the information in
this document.'' Then, under proposed Sec. 201.100(b)(5), the dealer
would be required to state the minimum number of poultry placements and
the minimum stocking density, which is the ratio that reflects the
minimum weight of poultry per facility square foot the live poultry
dealer intends to harvest from the grower following each growout.
New poultry growers may not understand how the discretionary
actions of live poultry dealers affect grower payments. The majority of
poultry growers are paid on the basis of farm weight multiplied by a
feed conversion variable. A live poultry dealer exercising discretion
in placements, stocking density, and target weight is directly
affecting that poultry weight basis. Cautioning growers about the
potential impact of dealer-controlled inputs and providing growers with
the minimum number of flocks and minimum stocking density of flocks to
be placed with the grower annually under the poultry growing
arrangement would help growers assess the projected baseline value of
their poultry growing arrangement. As discussed above, the provision of
this information would mitigate the information asymmetries and other
deception-related risks AMS has identified. It would enable growers to
more accurately measure their financial commitments and risks based on
information that they would otherwise be unable to obtain. It would
also mitigate the risks of being attracted by the integrator or any
other party into a poultry growing arrangement, or an additional
capital expenditure in furtherance of one, based on overly optimistic
scenarios.
AMS proposes to make conforming changes to Sec. 201.2 by adding
definitions for the terms placement, minimum number of placements,
growout, stocking density, and minimum stocking density. Placement
would be defined as the delivery of a poultry flock to the poultry
grower for growout. Minimum number of placements would mean the least
number of flocks of animals the live poultry dealer will deliver to the
grower for growout annually under the terms of the poultry growing
arrangement. Growout would be defined as the period of time between
placement of livestock or poultry on a farm and the harvest or delivery
of such animals for

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slaughter, during which the feeding and care of such livestock or
poultry are under the control of the farmer. Stocking density would be
defined to mean a ratio that reflects the number of birds in a
placement, generally expressed as head or pounds per square foot of the
poultry growing facility or facilities. Minimum stocking density would
be defined to mean the ratio that reflects the minimum weight of
poultry per facility square foot the live poultry dealer intends to
harvest from the grower following each growout.
Under proposed Sec. 201.100(b)(6), the live poultry dealer would
be required to include one of two alternative statements, depending on
whether the offered poultry growing arrangement includes housing
specifications that require or could reasonably require an original or
additional capital investment under one of the scenarios described
earlier in connection with proposed Sec. 201.100(a). If the new,
renewed, revised, or replacement poultry growing arrangement does not
contemplate modifications to existing housing specifications, the
dealer would include the statement in proposed Sec. 201.100(b)(6)(1)
in the Disclosure Document cover pages. The statement explains the
grower's right to read the Disclosure Document and all accompanying
documents carefully, and notes that the live poultry dealer is required
to provide the current or prospective poultry grower with the
Disclosure Document and a copy of the poultry growing arrangement at
least seven calendar days before the dealer executes the poultry
growing arrangement. Alternatively, if the dealer offers a new poultry
growing arrangement that would require the current or prospective
poultry grower to make an original capital investment, as in proposed
Sec. 201.100(a)(2), or offers or imposes modifications to existing
housing specifications that could reasonably require the current
poultry grower to make an additional capital investment, as in proposed
Sec. 201.100(a)(3), the dealer would be required to include the
statement in proposed Sec. 201.100(b)(6)(ii). The statement explains
the grower's right to read the Disclosure Document and all accompanying
documents carefully, and notes that the live poultry dealer is required
to provide the poultry grower with the Disclosure Document, a copy of
the poultry growing arrangement, the new or modified housing
specifications, and the letter of intent simultaneously. Inclusion of
one of these statements in the Disclosure Document cover pages is
intended to notify poultry growers of their rights under the
regulations and indicate what documents they should receive from the
live poultry dealer within the described timeframes.
Under proposed Sec. 201.100(b)(7), the live poultry dealer would
be required to include a statement notifying the poultry grower that
the terms of the poultry growing arrangement will govern the grower's
relationship with the live poultry dealer's company. The proposed
statement would further notify the poultry grower of their right,
notwithstanding any confidentiality provision in the poultry growing
arrangement, to discuss the terms of the poultry growing arrangement
and the Disclosure Document with a Federal or State agency; the
grower's financial advisor, lender, legal advisor, or accounting
services representative; other growers for the same live poultry
dealer; and a member of the poultry grower's immediate family or a
business associate. The proposed statement would explain that a
business associate is a person not employed by the poultry grower, but
with whom the current or prospective grower has a valid business reason
for consulting when entering into or operating under a poultry growing
arrangement.
AMS believes requiring this statement in the Disclosure Document
cover pages would help growers understand their rights under the Act
and the regulations and avert deception of growers. In the past,
industry stakeholders have reported to USDA that they believed the
terms of their poultry growing arrangements forbid growers from
discussing those arrangements with Federal and State agencies, other
growers for the same live poultry dealer, and other advisors.
Commenters on previous proposed rulemakings have reported fearing
reprisals from live poultry dealers for discussing their poultry
growing arrangements with others, although the current regulations
specify, at Sec. 201.100(b), that live poultry dealers must allow
poultry growers to do so. The proposed requirement to include this
statement in the Disclosure Document cover pages would advise poultry
growers that they have the right to discuss the terms of the poultry
growing arrangement with the entities listed, regardless of
confidentiality provisions that may be included in the arrangement.
Further, AMS is proposing to redesignate Sec. 201.100(b) as Sec.
201.100(h) and to revise the language to provide that the live poultry
dealer cannot prohibit current or prospective poultry growers from
discussing the terms of a poultry growing arrangement offer or the
accompanying Live Poultry Disclosure Document with the entities listed
above. The remainder of redesignated Sec. 201.100(h) would remain
unchanged.
Finally, proposed Sec. 201.100(b)(8) would require the live
poultry dealer to include the following sentence in bold type in the
Disclosure Document cover pages: ``Note that USDA has not verified the
information contained in this document. However, if it contains any
false or misleading statement or a material omission, a violation of
federal and/or state law may have occurred.'' With this language, AMS
intends to clarify that the Disclosure Document is not subjected to
agency review prior to submission to poultry growers, and that legal
recourse may be available for some present and future controversies
related to the Disclosure Document and the poultry growing arrangement.
Proposed Sec. 201.100(c)--Required disclosures following the cover
page--would specify the information live poultry dealer must provide in
the Disclosure Document following the cover pages. Under proposed Sec.
201.100(c)(1), the dealer would be required to provide a summary of
litigation over the previous six years between the live poultry dealer
and any poultry grower, including the nature of the litigation, its
location, the initiating party, a brief description of the controversy,
and any resolution. Information about a live poultry dealer's
litigation with poultry growers within the relevant period,
particularly the basis of the litigation and the volume of litigation
relative to the number of growers with whom the dealer contracts, would
help growers identify conflict origins and better assess potential risk
of conflict.
Proposed Sec. 201.100(c)(2) would require the live poultry dealer
to provide a summary of all bankruptcy filings in the previous six
years by the dealer and any parent, subsidiary, or related entity of
the live poultry dealer. Bankruptcy of the live poultry dealer poses a
very real financial risk to grower financial returns. It is unclear to
AMS to what extent lenders analyze these issues. While bankruptcy
proceedings should be public, that does not mean growers would be aware
of the proceedings or where the live poultry dealer might be in an
ongoing process. Recent or current bankruptcy filing is an indicator
relating to the financial health of the live poultry dealer, which a
poultry grower may need to consider when deciding whether to enter or
continue a contractual relationship with the dealer.
Proposed Sec. 201.100(c)(3) would require the live poultry dealer
to provide a statement that describes the

[[Page 34995]]

dealer's policies and procedures regarding the potential sale of the
poultry grower's farm or assignment of the poultry growing arrangement
to another party. AMS believes it is important for poultry growers to
have this information when considering a poultry growing arrangement,
because growers may encounter future scenarios where they choose or are
forced to exit poultry farming. These scenarios might include the
unfortunate death or disability of the grower or the prospect of other
occupational opportunities, etc. However, in some situations, farm
sales and assignments might be contingent on approval from the live
poultry dealer. Growers informed of these policies and procedures would
have the opportunity to develop a coherent strategy, should they desire
to exit poultry farming.
Under Sec. 201.100(d)--Financial disclosures--of this proposed
rule, live poultry dealers would be required to provide certain
additional information in the Disclosure Document. Under proposed Sec.
201.100(d)(1), dealers would be required to provide a table showing
average annual gross payments to poultry growers for the previous
calendar year. The table would be organized by housing specification as
required for growers in each complex located in the United States that
is owned or operated by the live poultry dealer.\59\ The table would be
required to express average payments on the basis of U.S. dollars per
farm facility square foot. Under Sec. 201.100(d)(2), live poultry
dealers would be required to provide tables showing quintiles of
average annual gross payments to poultry growers at the local complex
for each of the previous five years.\60\ Again, average payments would
be expressed on the basis of U.S. dollars per farm facility square
foot. Further, the required tables would be organized by year, housing
specification tier, and quintile. The proposed provision would describe
the process dealers should use to calculate and normalize table values.
A proposed conforming change to Sec. 201.2 would add a definition for
complex, meaning a group of local facilities under the common
management of a live poultry dealer. The definition would explain
further that a complex may include, but not be limited to, one or more
hatcheries, feed mills, slaughtering facilities, or poultry processing
facilities.
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\59\ Most dealers do not own or operate growout facilities, but
they do own everything else around which the growout facilities are
organized--i.e., the complex. The complex commonly includes the
processing plant and feed mill, and may include other production
facilities. Growers produce for a particular local complex, even
though the dealer may own more than one local complex and other
complexes around the country. Depending on the technical needs for
optimizing poultry growth for each product type, the dealer may have
multiple different housing specifications for growers who produce
different products for the complex. So, the required table would
show average payments to growers in each of the different housing
specifications at the complex.
\60\ The word ``local'' in this discussion is used to
differentiate between the complex with which the grower may be
considering a contract, and all the other complexes a dealer may
own.
---------------------------------------------------------------------------

AMS is proposing to require live poultry dealers to provide recent
average revenue information relating to growers at all the live poultry
dealer's U.S. complexes to illuminate the range of payments to growers
throughout the country. This information would allow growers to better
assess housing specifications and related payment variability elsewhere
in relation to what is offered at the local complex. AMS is proposing
to require dealers to provide historical revenue information relating
to growers in the same local complex because the information would give
the current or prospective poultry grower considering a poultry growing
arrangement a fairer picture of potential earnings under the
arrangement and would help the grower evaluate whether those earnings
would be sufficient to meet personal and business financial
obligations. As described earlier, research shows poultry grower
payments range widely above and below the mean received by contract
growers. As well, payments range widely between specific contracts and
grower pools. AMS believes providing quintiles for the previous five
years, as proposed, organized by housing specification tier and
normalized by square footage payments, would give growers information
with which to better assess projected payments under the poultry
growing arrangement. We believe that providing insights into the
variability of cash flow within any given year would enable growers to
make informed business decisions, manage risk, and improve farm
management.
Proposed Sec. 201.100(d)(3) would provide that if the housing
specifications for poultry growers under contract with the live poultry
dealer in the local complex may be modified so that an additional
capital investment may be required, or if for some other reason annual
gross payment averages for the previous five years do not accurately
represent expected future grower payment averages, the live poultry
dealer also would be required to provide the grower annual payment
projections for the term of the poultry growing arrangement under
consideration by housing specification and quintile, as under proposed
Sec. 201.100(d)(2). The dealer would also be required to explain why
the historical data does not provide an accurate representation of
future earnings. AMS is proposing this conditional requirement because
there are situations in which historical data may not accurately
reflect future projections. For example, changes in pay rates, pay
systems, housing specifications, growout models, stocking densities, or
number of annual placements are generally discretionary functions of
the live poultry dealer. These decisions can directly impact grower
payments. Live poultry dealers considering or undertaking actions
related to the aforementioned functions would be obligated to provide
grower payment projections to allow growers to determine the financial
feasibility of the upgrades and make better informed business
decisions. Standardized grower payment projections would include
realistic expectations about future earnings. Nothing in the proposed
provision would prohibit a live poultry dealer from providing grower
payment projections even if they were not required to do so under Sec.
201.100(d)(2).
Under proposed Sec. 201.100(d)(4), the live poultry dealer would
be required to provide a summary of any information the dealer collects
or maintains pertaining to grower variable costs inherent to poultry
production. A proposed conforming change to Sec. 201.2 would add a
definition for grower variable costs to mean those costs related to
poultry production that may be borne by the poultry grower, including,
but not limited to, utilities, fuel, water, labor, repairs and
maintenance, and liability insurance. Based on discussions with
integrators and other in the industry, AMS has found that many
integrators collect this data to inform grower pay rates. Thus, AMS
believes that live poultry dealers routinely collect and maintain this
information, and that providing such information to poultry growers
considering a poultry growing arrangement would help growers make
informed decisions about their participation in the poultry production
business.
Finally, under proposed Sec. 201.100(d)(5), the live poultry
dealer would be required to supply the contact information for the
State university extension service office or the county farm advisor's
office that can provide relevant information to the current or
prospective poultry grower about grower costs and poultry farm
financial management in the grower's geographic area. AMS believes that
growers can benefit from the expertise and

[[Page 34996]]

experience, as well as the information publicly available, from these
sources, if they choose to access it.
Proposed Sec. 201.100(e)--Small live poultry dealer financial
disclosures--would exempt live poultry dealers who, in conjunction with
any or all of the parent or subsidiary companies, slaughter fewer than
2 million live pounds of poultry weekly (104 million pounds annually)
from the requirement to provide the Disclosure Document under proposed
Sec. 201.100(a)(1). Eighty-nine live poultry dealers file annual
reports with AMS, and that number includes non-integrated processors
and integrators who do not use the contract production model. According
to AMS data, of that number, 47 live poultry dealers could be exempt
under certain circumstances from the requirement to provide the
Disclosure Document because they slaughter fewer than 2 million pounds
of poultry weekly or 104 million pounds annually. The exemption would
apply only if the new, renewed, or replacement contract offered by one
of these dealers does not include revisions to existing housing
specifications that would require the grower to make new or additional
capital investments. AMS is proposing this exemption in order to ease
the burden on smaller live poultry dealers. Often smaller operators
have a smaller pool of growers, and many of those growers are using
facilities that have been in production for many years, and are
unlikely to be required to make changes. AMS believes the risk and
impact of deception is reduced in this context and may not justify the
effort and expense to develop the Disclosure Document required of
larger business entities.
AMS is proposing to add new Sec. 201.100(f)--Governance and
certification, which would require the live poultry dealer to
establish, maintain, and enforce a governance framework that is
reasonably designed to review and ensure the accuracy and completeness
of the Disclosure Document, and ensure the live poultry dealer's
compliance with all its obligations under the Act and the regulations.
We believe a governance framework and anti-fraud protections would help
ensure sufficiently high-level corporate attention and legal
accountability. Under proposed Sec. 201.100(f), the framework must
include audits and testing, as well as reviews of an appropriate
sampling of Live Poultry Dealer Disclosure Documents by the principal
executive officer or officers. The principal executive officer, or a
person performing similar functions, of the live poultry dealer's
company would be required to certify that the company complies with the
governance framework requirement and that the Disclosure Document is
accurate and complete. Current civil and criminal actions \61\ related
to price fixing in the poultry industry, including admissions of
guilt,\62\ suggest the potential for a conspiracy of deception among
live poultry dealers. AMS believes that an audit and testing
requirement, combined with officer reviews and certification are
appropriately tailored to ensure the procedures used to produce the
Disclosure Document and the information contained therein are sound and
accurate.\63\ The framework retains flexibility to enable integrators
to design a framework appropriate to manage the risks relating to the
preparation of compete and accuracy disclosures. As explained earlier,
AMS is proposing to develop and provide a disclosure form with
standardized language, which live poultry dealers can download and
print. The proposed form would include a certification statement the
dealer must sign.
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\61\ ``Four Executives and Company Charged with Price Fixing in
Ongoing Investigation into Broiler Chicken Industry''. Justice News,
U.S. Department of Justice Office of Public Affairs, July 29, 2021.
Press Release. (referencing indictments against Koch Foods and
former Pilgrim's Pride executives).
\62\ Department of Justice Press Release No. 21-172. ``One of
the Nation's Largest Chicken Producers Pleads Guilty to Price Fixing
and is Sentenced to a $107 Million Criminal Fine''. February 23,
2021.
\63\ Audits, testing, and executive review and certification of
regulatory compliance requirements are found in several regulatory
regimes involving important market compliance protocols. These
include section 302 of the Sarbanes-Oxley Act (Pub. L. 107-204; 116
Stat. 745) and the Title XIII of the Bank Holding Company Act (12
U.S.C. 1851 et seq.) and regulations thereunder, commonly known as
the Volcker Rule, including revisions designed to simplify the rule.
See, ``Subpart D--Compliance Program Requirements'' (12 CFR 248.20,
and discussion in 79 FR 556); ``Revisions to Prohibitions and
Restrictions on Proprietary Trading and Certain Interests in and
Relationships With, Hedge Funds and Private Equity Funds'' (84 FR
61974).
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Under proposed Sec. 201.100(g)--Receipt by growers--a live poultry
dealer would be required to include in the Disclosure Document a
signature page. The signature page would be required to include this
statement: ``If the live poultry dealer does not deliver this
disclosure document within the time frame specified herein, or if this
disclosure document contains any false or misleading statement or a
material omission (including any discrepancy with other oral or written
statements made in connection with the poultry growing arrangement), a
violation of federal and state law may have occurred. Violations of
federal and state laws may be determined to be unfair, unjustly
discriminatory, or deceptive and unlawful under the Packers and
Stockyards Act, as amended. Allegations of such violations may be
reported to the Packers and Stockyards Division of USDA's Agricultural
Marketing Service.'' The live poultry dealer would further be required
to obtain the current or prospective grower's dated signature on the
signature page as evidence that the dealer provided the required
documents according to specified timeframes. The dealer would be
required to provide a copy of the dated signature page to the grower
and would be required to retain a copy of the dated signature page in
the dealer's records for three years following expiration, termination,
or non-renewal of the poultry growing arrangement. AMS believes growers
should be able to rely on the Disclosure Document for its intended
purpose to further inform poultry growers of items related to their
poultry growing arrangement. Growers should be aware that false or
misleading statements and/or material omissions contained in the
Disclosure Document may form a basis for legal action. AMS has an
interest in ensuring poultry growers receive the Disclosure Document
and accompanying documents in the appropriate timeframe, which would
afford growers time to review all pertinent documents and information
before they are required to sign binding contracts. Requiring live
poultry dealers to collect and retain proof of compliance would ensure
compliance with the proposed regulation.
In presenting this information to current and prospective growers,
the disclosure document is expected to reduce information asymmetry and
the risk of deception. AMS believes the proposed disclosure document
would make growers better aware of risks related to the poultry growing
arrangement and furnish growers with information that may currently be
available only to dealers. The disclosure document would clarify for
growers the high degree of control and influence the live poultry
dealer exerts over critical production factors that affect the business
success of growers' operations. Additionally, it would help prospective
growers assess the degree to which their own skill and effort may or
may not influence their pay.
AMS invites comments on various aspects of the proposal to require
live poultry dealers to disclose specific information to prospective
and current poultry growers in the Disclosure Document as described
above. Please fully explain all views and alternative solutions or
suggestions, supplying

[[Page 34997]]

examples and data or other information to support those views where
possible. While comments on any aspect of the Disclosure Document are
welcome, AMS specifically solicits comments on the following:
1. Would the amount and type of information required help poultry
growers make informed business decisions and better understand the
poultry growing arrangement, or otherwise better address deception
risks that growers may face in the poultry contracting process and in
the operation of a poultry growing arrangement?
2. What items might be added to or deleted from the proposed
requirements to make the Disclosure Document most useful? Is any of the
required information extraneous? Is any material information relevant
to the poultry contracting process, including the terms in and risks of
poultry growing arrangements, missing and should be added? Please
explain what and why.
3. What specific challenges or burdens might dealers face in
collecting and disseminating the information to be included in the
Disclosure Document? Would this require dealers to modify their
business model? What specific modifications would be required and why?
4. Do the proposed timelines for providing the Disclosure Document
enable a grower to make an informed decision? Do these timelines create
challenges for dealers or growers? If so, please explain why and
suggest a more appropriate length of time.
5. Are there additional instances where a revision to the
Disclosure Document would be appropriate? If so, please explain.
6. Is the wording of the proposed Disclosure Document and the
disclosures that may be expected to arise under it readily
understandable? If not, please suggest changes for improvement,
including means to ensure that any disclosures in the Disclosure
Document are readily understandable.
7. Are there circumstances in which the dealer should be required
to provide the Disclosure Document in a language other than English?
Are other business materials provided in other languages already? If
so, please describe those circumstances and comment on the benefits and
additional burden of such a requirement.
8. Are the proposed Disclosure Document statements regarding a
poultry grower's right to read the Disclosure Document and to share the
document and consult with certain other entities about the contents
useful for growers? Or, for example, should growers be given additional
notifications regarding where they can find out more about their legal
rights under the Packers and Stockyards Act, such as a USDA summary of
or a link to those rights? Or, would less information be appropriate?
Why or why not?
9. Are there additional advisories to poultry growers that should
be required in the Disclosure Document cover pages? If so, please
explain why and suggest appropriate language for such notices.
10. Are there other risks inherent to poultry production about
which growers should be informed prior to making major business
decisions? If so, please explain and suggest appropriate language for
such advisories.
11. Are the proposed disclosures regarding the financial health and
integrity of the live poultry dealer adequate to enable growers to make
sound business decisions? Why or why not?
12. Are there certain legal violations or other matters which could
call into question the financial health or integrity of the live
poultry dealer such that they should be disclosed?
13. Is the proposed disclosure regarding the dealer's policy on
sale-of-farm circumstances adequate to ensure transparency and
effective grower decision making?
14. Should we require dealers to disclose policies and procedures
for determining whether disaster or sick flocks are caused by the
integrator or grower and how growers will be compensated under each
scenario? Or, where a dealer maintains policies that do not remove sick
flocks from the tournament, should we require additional disclosures
regarding sick flock risks to the grower? Why or why not?
15. Should we require dealers to disclose the contractual grounds
for termination or suspension of the poultry growing arrangement? Why
or why not?
16. Are there any other policies and procedures that dealers should
be required to disclose? For example, should we require disclosure of
policies and procedures around tournament groupings, compensation
incentives of the dealers' representatives, or how growers may appeal
or report determinations or actions?
17. Are the proposed disclosures relating to grower payment history
and projections adequate to enable poultry growers to make sound
business decisions, are the proposed metrics appropriate, and is the
local complex the appropriate standard? What, if any, other information
should be required, and why? If so, how should it be provided?
18. Is our estimation of the recordkeeping burden related to
disclosing grower payment history appropriate? Why or why not?
19. Could certain types of financial disclosures facilitate harmful
coordination by integrators? Why or why not? If so, how could the risk
of harmful coordination be mitigated?
20. What effect, if any, would the required financial disclosures
have on the lending system and on the provision of credit to growers?
21. Would the provision of information about grower variable costs
benefit growers? Why or why not?
22. Have we listed the appropriate items regarding the grower
variable costs dealers should enumerate and disclose to growers? For
example, should we specify that dealers disclose information about
costs related to compliance with environmental regulations, energy,
water, and waste disposal? Are the timing of housing upgrades,
including financing costs, reasonably predictable enough by dealers
such that those costs should be considered part of grower variable
costs during the poultry growing arrangement? Why or why not?
23. Is the estimated burden to dealers related to providing
information about grower variable costs justified by the value to
growers of having the information? Why or why not?
24. What types of information about grower variable costs do
dealers currently collect? Are or how could dealers be incentivized to
collect any information that they do not collect, or otherwise obtain
such information in a reasonable manner?
25. How else can USDA refine and improve the disclosure regime
outlined in this proposal? For example, would additional detail around
the scope or definition of deception under the Packers & Stockyards Act
be useful for implementing this disclosure regime--for example, a
definition such as ``Deception shall mean a material representation,
omission, or practice that is likely to mislead a reasonable livestock
or poultry producer or grower''? Why or why not?
26. Is the proposed exemption from the Disclosure Document
requirements for small businesses under certain circumstances
appropriate? What risks or benefits are there in providing such
exemptions? Are there other approaches--such as different thresholds--
we should consider that could be appropriately tailored to small live
poultry dealers?

[[Page 34998]]

27. Is the proposed governance structure appropriate and sufficient
for ensuring the accuracy of information provided in the Disclosure
Document? Why or why not?
28. Is the proposed governance structure appropriate for dealers?
Please explain the burden and how it could be mitigated while providing
sufficient accountability.
29. Are there other ways AMS could sufficiently ensure the
completeness and accuracy of the Disclosure Document, and if so, should
these replace or be added to any of the proposed provisions?
30. Should AMS specify the format (e.g., electronic or machine-
readable) in which disclosure records should be maintained? Why or why
not?
31. Should AMS collect disclosure data, and if so, how might we use
such data to enhance compliance and accuracy and monitor for possibly
deceptive practices?
32. As proposed, the Disclosure Document requirement would apply to
live poultry dealers in all segments of the poultry production
industry. How appropriate are the proposed requirements for all types
of poultry production? Should the requirement to provide the Disclosure
Document be limited in application to broiler and turkey production, or
is it appropriate to apply it to other types of poultry?

C. Contract Terms

Currently, Sec. 201.100(c)--Contracts; contents--specifies certain
information that must be included in a poultry growing arrangement. The
live poultry dealer is required to specify the duration of the contract
and conditions for termination of the contract by each of the parties,
all terms relating to the poultry grower's payment, and information
about a performance improvement plan for the grower, if one exists. As
mentioned earlier in this document, AMS is proposing to redesignate
current Sec. 201.100(c) as Sec. 201.100(i). Under this proposed rule,
AMS would further revise new paragraph (i) by requiring the live
poultry dealer to specify the minimum number of placements to be
delivered to the poultry grower's farm annually in each year of the
contract, and the minimum stocking density of each of those placements.
As explained earlier, the minimum number of placements and the minimum
stocking density of each placement under the poultry growing
arrangement directly impact poultry grower revenues. Both figures are
crucial to a current or prospective grower's ability to evaluate
potential earnings under the contract and their ability to and meet
financial obligations. AMS believes requiring live poultry dealers to
include this information in poultry growing contracts would improve
transparency and reduce the risk of deceptive inducement in the
contracting process. As well, providing such information may allow
lenders and insurers to better evaluate the desirability of poultry
loans they are asked to consider.
AMS does not intend, in this rule, to restrict or influence the
values provided under these mandatory provisions, but simply to require
their transparent inclusion in production contracts. Knowing the
minimum stocking density would allow the grower to predict baseline
farm weight on a per flock basis. Using the baseline farm weight, the
grower could calculate a baseline annual income based on the annual
minimum number of flocks. We believe that requiring live poultry
dealers to include these two terms in poultry growing arrangements
would enable poultry growers to better estimate potential baseline
returns from their operations and assess the expected value of the
poultry growing arrangements overall, which could in turn foster
improved debt management and cash flow. Having this information may
also enable growers, as well as their lenders (private lending
institutions and public entities that guarantee loans, including FSA),
to better estimate and manage risks inherent in poultry production,
including facilitating the acquisition of external insurance and risk
management products.
Finally, AMS believes improving transparency in this regard would
assist growers in better identifying and mitigating deception-related
risks, including relationship frictions, conflicts of interest, and
inappropriate conduct, including potential retaliation or
discrimination. A grower's ability to estimate a contract's expected
value and appropriately assess its financial feasibility is paramount
to operational planning and risk management, including managing
expectations and avoiding poor business decisions. Further,
establishing a baseline against which to compare the integrator's
performance under the contract would help growers identify deviations
from contractual expectations. The rationale for such deviations might
be contested. However, added transparency would reduce the risk that
adverse actions by integrators against growers could be hidden and
growers deceived about whether integrators are fulfilling their
contractual obligations. Clearer contractual guarantees in particular
would counter the ability for integrators to strategically reduce
supply by limiting placements or cutting stocking densities and
negatively impacting the earnings of growers without the growers being
able to measure, in a reliable and effective manner, the harm they have
in fact suffered. Transparency also would discourage the integrator
from engaging in discriminatory or retaliatory conduct against growers
because the adverse actions would no longer be hidden. Fortunately, as
noted above, a more transparent baseline may provide a common floor
against which both integrator and grower can work together to manage
and mitigate meaningful market risks.
The remainder of redesignated Sec. 201.100(i) would remain
unchanged. As well, the text of redesignated paragraphs (j), (k), (l),
and (m) of Sec. 201.100 (currently Sec. 201.100(d), (e), (g), and
(h), respectively), would remain otherwise unchanged under this
proposed rule.
AMS solicits comments on the proposal to require a live poultry
dealer to specify in a poultry growing arrangement the minimum number
of flocks to be placed with the grower each year under the contract and
to specify the minimum stocking density of each flock. Please fully
explain all views and alternative solutions or suggestions, supplying
examples and data or other information to support those views where
possible. While comments on any aspect of the revisions to contract
terms are welcome, AMS specifically solicits comments on the following:
1. Do the proposed requirements to specify an annual minimum number
of flocks and a minimum stocking density for each flock under the
poultry growing arrangement adequately address the need for
transparency to avoid deception in poultry growing arrangements? Why or
why not?
2. Are there alternative solutions we should consider? For example,
in relation to the guaranteed minimum number of flocks per year, would
it be more useful to growers and simpler for integrators to express
that value as a guaranteed number, or range, of days between flocks?
Why or why not?

D. Poultry Grower Ranking Systems

To address concerns identified in the section on Poultry Grower
Ranking Systems earlier in this document, AMS proposes to add a new
Sec. 201.214--Transparency in poultry grower ranking pay systems. The
new section would specify the recordkeeping and disclosure requirements
for live poultry dealers when they group or rank poultry growers
delivering poultry to the dealer during a specified period for the

[[Page 34999]]

purpose of determining payment to poultry growers. Conforming changes
would be made to Sec. 201.2 to add definitions for terms used in new
Sec. 201.214.
Currently, live poultry dealers are required under the regulations
at 9 CFR 201.100(d) to furnish poultry growers in poultry grower
ranking systems with settlement sheets that show the grower's precise
position in the ranking for that tournament. As explained earlier,
under this proposed rule, that paragraph would be redesignated Sec.
201.100(j), retaining the requirement to provide settlement sheets. AMS
proposes to add a requirement in new Sec. 201.214(a)--Poultry grower
ranking system records--that would require a live poultry dealer who
calculates payment under a poultry grower ranking system to produce and
maintain records showing how certain inputs were distributed among
participants. Further, the dealer would be required to maintain those
records for five years. Maintaining records allows USDA or any other
party with the proper legal authority to collect them for review in the
course of an investigation or legal action. The term poultry grower
ranking system, meaning a system where the contract between the live
poultry dealer and the poultry grower provides for payment to the
poultry grower based upon a grouping, ranking, or comparison of poultry
growers delivering poultry during a specified period, would be added to
Sec. 201.2. The term inputs, would also be added to Sec. 201.2 and
would be defined as the various contributions to be made by the live
poultry dealer and the poultry grower as agreed upon by both under a
poultry growing arrangement. The proposed definition would further
provide that such inputs may include, but are not limited to, animals,
feed, veterinary services, medicines, labor, utilities, and fuel.
Proposed Sec. 201.214(b) would require a live poultry dealer to
provide certain information about the flock placed with the poultry
grower within 24 hours of the placement on the grower's farm.
Specifically, the dealer would be required to provide the flock's
stocking density, expressed as the number of poultry per facility
square foot; the ratios of breeds of the flock delivered; the ratios of
male and female birds in the flock, if the sex of the poultry had been
determined; the breeder facility identifier; the breeder flock age;
information regarding any known health impairments of the breeder flock
and of the poultry delivered to the poultry grower; and what, if any
adjustments will be made to grower pay to reflect any of these inputs.
As explained earlier in this document, each of these inputs may
influence farm weight and feed conversion. In some cases, a poultry
grower may adjust management practices in response to potential impacts
of inputs on flock performance. This requirement is intended to equip
the poultry grower with basic, accurate information at the outset of
each growout period about the placement that may inform the grower's
management decisions during growout. Growers armed with this
information may be better able to efficiently allocate resources during
flock growout and maximize their individual profitability.
As conforming changes, AMS proposes to add the following terms and
their definitions to Sec. 201.2. Breeder facility identifier would be
defined to mean the identification a live poultry dealer assigns to
distinguish among breeder facilities supplying eggs for the poultry
placed in poultry growout operations. These identifiers should be
permanent, remaining the same from one growout period to the next, so
that growers can observe patterns, if any, related to the performance
of flocks originating with different breeders. Live poultry dealers may
assign alpha or numeric or some other identifier to each farm to keep
the identity of individual breeder facilities private. Breeder flock
age would be defined to mean the age of the egg-laying flock that is
the source of poultry placed on the poultry grower's farm. Depending on
the type and breed of poultry being raised, the age of the breeder
flock producing the eggs from which poultry for growout are produced
may influence the grower's production decisions.
Under proposed Sec. 201.214(c)--Settlement documents--a live
poultry dealer employing a poultry grower ranking system to calculate
settlement payments for poultry growers would be required to provide
every grower within the tournament ranking system settlement documents
that show certain information about each grower's ranking within the
system, as well as the inputs each poultry grower received, for each
growout period. Proposed Sec. 201.214(c)(1) would reflect language in
current Sec. 201.100(f) that requires the live poultry dealer to
provide each poultry grower a copy of a grouping or ranking sheet that
shows the grower's precise position in the grouping or ranking for that
growout period. Additionally, the live poultry dealer would be required
to show the housing specifications and the actual figures upon which
the grouping or ranking is based for each grower grouped or ranked in
the system during the specified growout period.
Under proposed Sec. 201.214(c)(2), live poultry dealers would be
required to make visible to all grower participants in the poultry
grower ranking system the distribution of dealer-controlled inputs
provided to all participants. Specifically, live poultry dealer would
be required to disclose the stocking density at each grower's
placement, expressed as the number of poultry per facility square foot.
The dealer would be required to disclose the ratios of the breeds of
poultry and the ratios of male and female poultry, if poultry are
sexed, placed at each poultry grower's farm. The live poultry dealer
would be required to indicate with the use of breeder facility
identifiers the source of poultry placed at each poultry grower's
facility. The dealer would be required to disclose the age of the egg
laying breeder flock from which each poultry grower's placement is
produced. The dealer would also be required to report the number of
feed disruptions of 12 hours or more each grower experienced during the
growout period. Finally, the live poultry dealer would be required to
identify any growers' flocks that received any other inputs (such as
medication) delivered or administered to the poultry on the
participating growers' facilities during the growout period.
As mentioned above, live poultry dealers are currently required to
provide settlement sheets showing each grower's ranking within the
poultry grower ranking system and to show the actual figures used to
rank poultry growers for settlement purposes. However, poultry growers
have complained to USDA that the limited information they get does not
allow them to effectively evaluate their performance compared to others
because they don't know how the inputs they receive compare to the
inputs other growers receive. Nor do they know how their performance
relates to housing specifications. Further, some growers believe other
growers within the same poultry grower ranking system receive superior
inputs to their own.
AMS believes the settlement information provided under proposed
Sec. 201.214 would enable growers to make factual comparisons about
their performance relative to other growers' performance within the
poultry grower ranking system. As well, growers may begin to recognize
patterns. For instance, a poultry grower might observe that those
growers who experienced one or more lengthy feed disruptions ranked
lower than growers without feed disruptions. Based on that observation,
the grower might determine

[[Page 35000]]

to place feed orders with the live poultry dealer earlier than they
have in the past to ensure future flocks have consistent feed supplies.
Or perhaps growers may identify patterns in performance in relation to
housing specifications, and make evaluations regarding the relative
impact of skills and effort versus housing design and adjust their
business strategies accordingly. Such evaluations and patterns would
reduce deception risks such as those associated with misplaced efforts
by growers or over- or underinvestment by growers in attempts to
operate successfully within the tournament system as designed and
managed by the integrator.
The disclosures in proposed Sec. 201.214 could potentially affect
the poultry grower's business decisions in various ways. For instance,
poultry growers currently may have limited access to information about
the poultry breeds, breeder stock age, stocking density, type and
administration of veterinary medicines, and transportation or other
integrator inputs provided to themselves and other growers in their
tournament group. With disclosures under the proposed rule, growers may
be able to adjust management practices to optimize growout performance
if they know the poultry's breed or have information about the age and
health of the breeder flock for their own placements. Additionally, if
they have information about feed disruptions, different stocking
densities, veterinary treatments, and other different inputs among all
growers in the settlement group, poultry growers in tournament systems
may be better able to recognize performance patterns and reallocate
their resources to optimize their own growout performance. Poultry
growers would still receive settlement sheets as currently provided
under Sec. 201.100(d), which helps growers verify accuracy of
payments, but they would have the added advantage of being able to
measure and manage risks and detect possible retaliation or
discrimination.
AMS invites comments on the proposed addition of new Sec. 201.214
to the regulations and on the proposed requirements to provide poultry
growers in tournament systems with information about inputs both at the
time of placement and at settlement. Please fully explain all views and
alternative solutions or suggestions, supplying examples and data or
other information to support those views where possible. While comments
on any aspect of the proposed new section are welcome, AMS specifically
solicits comments on the following:
1. Is the proposed period for maintaining records relating to the
distribution of inputs to tournament participants appropriate?
2. How long such records should be maintained and why?
3. What burdens does this recordkeeping create for dealers?
4. How well does the proposed requirement to supply input
information about each placement to growers at the time of placement
respond to grower requests for such information?
5. Is the type or amount of information required appropriate, or
should certain items be added to or deleted from the list, or otherwise
modified? More particularly, should information about the contents and
origin (or mix) of the feed supplied or the provision of veterinary
services be disclosed to all tournament participants or not? Why or why
not?
6. Is the required information useful to a grower's operations or
not, including in managing risks and otherwise in preventing deception?
Why or why not?
7. What benefits or costs may be associated with this requirement,
and would those benefits or costs be justified?
8. What specific burdens or challenges might dealers encounter in
collecting information for placement disclosures?
9. Would the requirement to provide placement disclosures affect
dealers' business practices? If so, how?
10. How well does the requirement to provide input distribution
information, along with settlement payment information, for all members
of the tournament respond to grower requests to improve transparency,
address information asymmetry, and reduce the chance of deception in
the tournament payment system?
11. Does the requirement to disclose the housing specifications
along with settlement payment information improve transparency, address
information asymmetry, and reduce the chance of deception in the
tournament payment system? Why or why not?
12. Would the proposed settlement information help growers evaluate
and improve, if necessary, their performance, make informed business
decisions, or mitigate risks? Why or why not?
13. Is there other information or another way of presenting the
information that would be better?
14. Do growers face any obstacles to sharing or discussing
placement or settlement information with others that should be
addressed; if so, what are those obstacles and how should they be
addressed? Should rights to discuss the terms of poultry growing
arrangement offer apply to all the disclosures proposed by this rule?
Why or why not?
15. What specific burdens or challenges would dealers encounter in
implementing the settlement disclosure, and what strategies might help
mitigate those burdens or challenges?
16. How would the proposed changes to settlement disclosures affect
dealers' business practices?
17. Under existing regulation 201.100(f), live poultry dealers are
not required to disclose the names of other growers on ranking sheets.
Under 201.214 of this proposal live poultry dealers would disclose a
breeder farm identifier in the settlement disclosures but would not be
required to disclose the name of breeder farms. Should we reevaluate
our position on this issue? Why or why not?
18. Currently, dealers are not required to disclose the names of
all competing growers on ranking sheets. Should we require dealers to
disclose the names of all competing growers in settlement documents?
Why or why not?
19. Are there other ways of expressing grower identity information
that would be useful to growers and balance privacy and confidentially
concerns?
20. We propose to require dealers to disclose the number of feed
disruptions each poultry grower endured during the growout period,
where the grower was completely out of feed for 12 hours or more. Is
this an appropriate length of disruption to trigger reporting? Should
we require a shorter time, such as 6 hours? Please explain your views.

VI. Regulatory Analyses

A. Executive Order 12988--Civil Justice Reform

This proposed rule has been reviewed under Executive Order 12988--
Civil Justice Reform. This proposed rule is not intended to have
retroactive effect. This proposed rule would not preempt state or local
laws, regulations, or policies, unless they present an irreconcilable
conflict with this rule. There are no administrative procedures that
must be exhausted prior to any judicial challenge to the provisions of
this rule. Nothing in this proposed rule is intended to interfere with
a person's right to enforce liability against any person subject to the
Act under authority granted in section 308 of the Act.

[[Page 35001]]

B. Executive Order 13175--Consultation and Coordination With Indian
Tribal Governments

This rule has been reviewed in accordance with the requirements of
Executive Order 13175--Consultation and Coordination with Indian Tribal
Governments. Executive Order 13175 requires Federal agencies to consult
with tribes on a government-to-government basis on policies that have
tribal implications, including regulations, legislative comments or
proposed legislation, and other policy statements or actions that have
substantial direct effects on one or more Indian tribes, on the
relationship between the Federal Government and Indian tribes or the
distribution of power and responsibilities between the Federal
Government and Indian tribes.
This proposed rule may impact individual members of Indian tribes
that operate as live poultry dealers or poultry growers; however, it
would not have a direct effect on tribes or the relationship or
distribution of power and responsibilities between the Federal
Government and Indian tribes. Therefore, consultation under Executive
Order 13175 is not required at this time. If a Tribe requests
consultation, AMS will work with OTR to ensure meaningful consultation
is provided where changes, additions, and modifications identified
herein are not expressly mandated by Congress. AMS will also extend
outreach to ensure tribe members are aware of the requirements and
benefits under this proposed rule once final.

C. Civil Rights Impact Analysis

AMS has considered the potential civil rights implications of this
proposed rule on members of protected groups to ensure that no person
or group would be adversely or disproportionately at risk or
discriminated against on the basis of race, color, national origin,
gender, religion, age, disability, sexual orientation, marital or
family status, or protected genetic information. This rule does not
contain any requirements related to eligibility, benefits, or services
that would have the purpose or effect of excluding, limiting, or
otherwise disadvantaging any individual, group, or class of persons on
one or more prohibited bases. In fact, the proposed regulation would
create means by which AMS may be able to address potential civil rights
issues in violation of the Act.
In its review, AMS conducted a disparate impact analysis, using the
required calculations, which resulted in a finding that Asian
Americans, Pacific Islanders, and Native Hawaiians were
disproportionately impacted. The proposed regulations would provide
benefits to all poultry growers. AMS will institute enhance efforts to
notify the groups found to be more significantly impacted of the
regulations and their implications. AMS outreach will specifically
target several organizations that regularly engage with or otherwise
may represent the interests of these impacted groups.

D. Paperwork Reduction Act

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
Chapter 35), AMS has requested OMB approval of new information
collection and recordkeeping requirements related to this proposed
rule. AMS invites comments on this new information collection. All
comments received on this information collection will be summarized and
included in the final request for OMB approval. Below is summary
information on the burdens of these new information collection and
recordkeeping requirements. Additional detail can be found in the
Regulatory Impact Analysis (RIA). Comments on this section or the
details in the RIA will be considered in the final rule analysis.
Title: Transparency in Poultry Grower Contracting and Tournaments.
OMB Number: 0581-NEW.
Expiration Date of Approval: This is a NEW collection.
Type of Request: Approval of a New Information Collection.
Abstract: The information collection requirements in this request
are essential to improve transparency and forestall deception in the
use of poultry growing arrangements, in accordance with the purposes of
the Packers and Stockyards Act, 1921. Proposed revisions to the Packers
and Stockyards regulations would require live poultry dealers to
provide certain disclosures to poultry growers in advance of entering
into production contracts. Under the proposal, dealers would have the
option of using the Live Poultry Dealer Disclosure Form provided by AMS
to meet the requirements for the cover page that must accompany
additional dealer-generated disclosure documents as required.
Alternatively, dealers could develop their own cover page to meet the
requirement, as long as all the required information is included.
Poultry growers could use the disclosure information to evaluate the
accuracy of proposed contracts and make informed business decisions
regarding financial investments related to poultry production.
The proposed rule would also require live poultry dealers who group
and rank poultry growers for settlement purposes to disclose essential
information to poultry growers about the flocks placed with individual
growers at the time of placement. Dealers would also be required to
disclose information about the flocks and associated production inputs
delivered to all growers in the settlement group, as well as each
grower's ranking within the group, at the time of settlement. The
estimates provided below apply only to live poultry dealers who would
be required to provide the information to growers. Poultry growers
would not be required to provide information, but would be able to use
the information provided by live poultry dealers to improve flock
management practices and evaluate grower treatment under poultry grower
ranking systems.
Live Poultry Dealer Disclosure Document
Estimate of Burden: Public reporting burden for this collection of
information is estimated to average 0.87 hours per response (first
year), 0.26 hours thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents: 89.
Estimated Number of Responses: 23,047.
Estimated Number of Responses per Respondent: 259.
Estimated Total Annual Burden on Respondents: 19,993 hours first
year, 6,066 thereafter.
Poultry Grower Ranking System Records
Estimate of Burden: Public reporting burden for the collection of
information is estimated to average 0.29 hours per response (first
year), 0.10 hours thereafter.
Respondents: Live poultry dealers.
Estimated Number of Respondents: 89.
Estimated Number of Responses: 32,011.
Estimated Number of Responses per Respondent: 360.
Estimated Total Annual Burden on Respondents: 9,253 hours first
year, 3,201 thereafter.
Comments: Comments are invited on: (1) Whether the proposed
collection of the information is necessary for the proper performance
of the functions of the agency, including whether the information will
have practical utility; (2) the accuracy of the agency's estimate of
the burden of the proposed collection of information; (3) ways to
enhance the quality, utility, and clarity of the information to be
collected; and (4) ways to minimize the burden of the collection of
information on those who

[[Page 35002]]

are to respond; including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology.
AMS estimates each of 89 live poultry dealers would develop an
average of 259 Live Poultry Dealer Disclosure Documents for poultry
growers relating to new, renewed, revised, or updated poultry growing
arrangements, as required under proposed Sec. 201.100. AMS arrived at
its estimate of 259 developed Disclosure Documents per live poultry
dealer from AMS records which show 89 live poultry dealers filed annual
reports with AMS, and their reports indicate that they had 23,047
growing contracts with poultry growers during their fiscal year 2020.
AMS divided the 23,047 growing contracts by the 89 live poultry dealers
to arrive at 259 Disclosure Documents per live poultry dealer. Dealers
with current contracts with poultry growers would not be required to
provide the Disclosure Document to those growers unless the dealer is
proposing modifications to the poultry housing specifications under the
contract. AMS estimates first year development, production, and
distribution of the Disclosure Documents, including management, legal,
administrative, and information technology time, would require an
average 0.87 hours each, while ongoing annual production and
distribution of each Disclosure Document would take 0.26 hours. AMS
arrived at the estimates of the number of hours on an annual basis to
set up, produce, distribute, and maintain each Disclosure Document by
dividing the annual number of responses for all live poultry dealers
(23,047) by the number of hours to set up, produce, and distribute the
disclosures (19,993 first year hours and 6,066 ongoing hours). AMS
estimated the number of hours for all live poultry dealers to develop,
produce, distribute, and maintain each Disclosure Document from the
number of hours estimated and the expected cost estimates in Tables 1
and 2 in Appendix 1.
AMS estimates 89 live poultry dealers would each provide placement
and settlement records to an average of 360 poultry growers under
tournament ranking systems, as required under proposed Sec. 201.214.
AMS estimated the annual number of placement and settlement records by
multiplying the number of slaughter plants in AMS records from the
reports that live poultry dealers file with AMS (228) by the average
number of tournaments at each plant per week from AMS subject matter
experts (1.35) by 52 weeks. This product is then multiplied by two to
account for both placement and settlement records. AMS then divided the
estimated annual number of responses (32,011) by the number of live
poultry dealers (89) to arrive at its estimate of 360 placement and
settlement disclosure records for each live poultry dealer on an annual
basis.
AMS estimates first year development, production, and distribution
of the required placement and settlement records, as required under
proposed Sec. 201.214, including management, legal, administrative,
and information technology time, would require approximately 0.29
hours. AMS estimates ongoing annual production and distribution of
required tournament placement and settlement information would require
an average of 0.10 hours. AMS arrived at the estimates of the number of
hours to set up, produce, and distribute, and maintain each Disclosure
Document on an annual basis by dividing the annual number of responses
for all live poultry dealers (32,011) by the annual number of hours to
set up, produce, distribute, and maintain the placement and settlement
disclosures (19,993 first year hours and 6,066 ongoing hours). AMS
estimated the number of hours for all live poultry dealers to develop,
produce, and distribute each placement and settlement Disclosure
Document from the number of hours estimated and the expected cost
estimates in Tables 1 and 2 in Appendix 1.
Under proposed Sec. 201.100(f), live poultry dealers would be
required to certify as to the accuracy of the Disclosure Document and
would be required to maintain records relating to the Disclosure
Document for three years following expiration of the poultry growing
arrangement. Under proposed Sec. 201.214, live poultry dealers would
be required to maintain records related to poultry grower tournament
placements and settlement for five years.
The required disclosures under proposed 201.100 would include
essential information about the contract, the live poultry dealer's
business history, and financial projections the grower could use to
evaluate entering into the contract. Under the proposal, live poultry
dealers would be required to provide the Live Poultry Dealer Disclosure
Document, which includes specified information and boilerplate grower
notifications. AMS would make available a form--the Live Poultry Dealer
Disclosure Form--dealers could download from the AMS website as the
cover pages for Disclosure Document, or they could create their own
cover pages, as long as all the required information is included. Live
poultry dealers would be required to obtain grower signatures as
evidence of compliance with the disclosure requirements, and would be
required to retain the signature page for three years following
contract expiration.
Proposed Sec. 201.214 would also require live poultry dealers who
group or rank poultry growers for settlement purposes to disclose
information about each flock of poultry placed with growers for growout
at the time of placement. Additionally, dealers would be required to
provide to each poultry grower in the group, at the time of settlement,
information about the flocks placed with every grower in the group, as
well as each grower's performance ranking within the group. Growers
could use placement disclosures to inform flock management decisions
during growout, and could use settlement disclosures to evaluate their
growout performance, potentially improve future performance, and
evaluate whether group members are treated fairly. Live poultry dealers
would be required to maintain records related to these disclosures for
five years following settlement.
Costs of Proposed Sec. Sec. 201.100 and 201.214
The combined costs to live poultry dealers for compliance with the
reporting and recordkeeping requirements of proposed Sec. Sec. 201.100
and 201.214 are expected to be $2,436,964 in the first year, and
$733,609 in subsequent years. The total hours estimated for the live
poultry dealers to create, produce, distribute, and maintain these
documents are 29,246 in the first year, and 9,267 in subsequent years.
Complete details showing how AMS arrived at these cost estimates appear
in Tables 1 and 2 in Appendix 1.

E. E-Government Act

USDA is committed to complying with the E-Government Act by
promoting the use of the internet and other information technologies to
provide increased opportunities for citizen access to Government
information and services, and for other purposes.

F. Executive Orders 12866 and 13563

AMS is issuing this proposed rule in conformance with Executive
Orders 12866--Regulatory Planning and Review and 13563--Improving
Regulation and Regulatory Review, which direct agencies to assess all
costs and benefits of available regulatory alternatives and, if
regulation is

[[Page 35003]]

necessary, to select regulatory approaches that maximize net benefits,
including potential economic, environmental, public health and safety
effects, distributive impacts, and equity. Executive Order 13563
emphasizes the importance of quantifying both costs and benefits,
reducing costs, harmonizing rules, and promoting flexibility.
In the development of this proposed rule, AMS considered several
alternatives, which are described in the Regulatory Impact Analysis,
below.
The proposed rule is not expected to provide, and AMS did not
estimate, any environmental, public health, or safety benefits or
impacts associated with the proposed rule. We request comment on
potential environmental, public health, or safety impacts of the
proposed rule as well as data sources and approaches to measure their
economic implications.
This proposed rule has been determined to be significant for the
purposes of Executive Order 12866 and, therefore has been reviewed by
OMB. Details on the estimated costs of this proposed rule can be found
in the rule's economic analysis.
AMS is proposing to amend 9 CFR part 201 by adding new definitions
to Sec. 201.2, adding contract and disclosure requirements for live
poultry dealers in Sec. 201.100, and adding new Sec. 201.214
regarding live poultry dealer responsibilities when they use poultry
grower ranking systems to settle payments for poultry growers. Based on
its familiarity with the industry, AMS's Packers and Stockyards
Division (PSD) prepared an economic analysis of the proposed rule as
part of the regulatory process. The economic analysis includes a cost-
benefit analysis of the proposed rule. PSD then discusses the impact on
small businesses.

G. Regulatory Impact Analysis

As a required part of the regulatory process, AMS prepared an
economic analysis of the costs and benefits of the proposed Sec. Sec.
201.100 and 201.214.
The poultry industry is highly vertically integrated. That is, a
single entity owns or controls nearly all the steps of poultry
production and distribution. Poultry production contracts reduce the
costs for integrators of negotiation with individual growers over the
purchase of individual flocks of poultry and relieve integrators from
the burden and risks of owning and maintaining poultry houses. The
growout portion of production is largely accomplished through contract
growers, who bear these burdens and risks. Most poultry, and
particularly broilers, are grown under production contracts.
The Agricultural Census reported that 96.3 percent of broilers and
69.5 percent of turkeys were raised and delivered under production
contracts in 2017. Live poultry dealers place chicks in barns owned by
contract growers. Typically, live poultry dealers provide young
poultry, feed, medication, and harvest and transportation services to
these poultry growers, who house, feed, and tend the growing birds.
In order to grow poultry on a commercial scale, a poultry grower
must invest in housing. The investment is substantial. As discussed
above, it may take $350,000 to $400,000 or more to build one grow
house, and most farms have multiple houses. The total investment
required can easily exceed $1 million. Also, the housing is built and
equipped specifically for the purpose of growing poultry. The costs of
adapting the housing for any other purpose can be prohibitive.\64\
Because the integrators control most aspects of a grower's production,
growers are dependent upon the actions of the integrators to recoup the
grower's substantial and specific investment. This puts growers in a
particularly precarious position where market concentration has led to
there being only a small number of integrators with whom to do
business--as is the case in almost all geographic markets.
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\64\ For a discussion of the difficulty in adapting of broiler
grow houses for other purposes, see Vukina and Leegomonchai 2006,
Op. Cit.
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The vertical integration of the industry leads to many risks borne
by contract poultry growers. Some of these risks are discussed above.
Notably, because of the large investment required of poultry growers,
the financial risk of protecting that investment is substantial.
Because integrators maintain such heavy influence over many aspects of
growers' production, growers have significant exposure to liquidity
risks, should flock placements and revenues fall.
Thus, contract poultry growers are subject to numerous risks
associated with integrator control over specific aspects of their
operations, such as the frequency and density of flock placements, and
the related risks of not having control over the genetic quality or
health of the chicks that are placed. Integrators control the
scheduling of feed deliveries, which also can impact feed conversion
and thus grower pay. Also, production variables such as target weights
of birds and the growout periods of birds are determined by the
integrator, further adding to the risks borne by contract poultry
growers. Because integrators control most aspects of grower performance
and compensation, that control could be used as a means of retaliation
or discrimination. If, for example, a grower has made complaints
against the integrator, the integrator may provide fewer or poorer
quality inputs, resulting in lower pay.
Integrators benefit from poultry growing contracts by having
control over the quality and supply of inputs (birds) into the
processing plant while remaining free from many of the risks related to
capital investments in growing capacity, where those costs and
associated risks are borne by the growers. On the other hand, contracts
shift other risks from the grower to the integrator. With integrators
responsible for chick genetics, feed quality, and other inputs (with
the possible exception of fuel), changes in input prices do not
directly affect growers. Growers also do not bear the risks (or enjoy
the benefits) of price changes in the value of live poultry or poultry
meat, as they do not own the poultry or poultry meat and thus do not
sell it. Research on poultry growing contracts in the broiler market
has shown them to shift that variation in input costs and output
prices, which comprises up to 84 percent of the variation in returns to
broiler production.65 66
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\65\ Knoeber, C.R. and W.N. Thurman. 1995. ``Don't Count Your
Chicken. . . : Risk and Risk Shifting in the Broiler Industry.''
American Journal of Agricultural Economics 77, 486-496.
\66\ This research is regularly cited and reaffirmed in the
current economics literature including Tsoulouhas and Vukina (2001)
and McDonald (2014) that we cite elsewhere.
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The most common form of a poultry growing contract is a ``relative
performance'' contract, also known as a ``tournament'' contract in the
industry. Under tournament contracts, the integrator assigns each
grower to a settlement pool, which consists of all the growers given
flocks that the integrator processed in a given week. The integrator
provides the grower with the production inputs of an initial supply of
chicks and feed and veterinary support throughout the growing period;
The grower provides the inputs of housing, water, electricity, labor
and management. At the time of processing, the integrator collects the
finished birds and calculates an average performance metric for the
settlement pool, typically the feed-conversion ratio or similar metric.
The grower's compensation under the tournament contract, is the sum of
a base payment, which typically depends on the total liveweight of the
finished birds (less feed and chick costs), and a payment or deduction
based on the average

[[Page 35004]]

performance metric for the settlement pool. For most tournaments, the
payment or deduction formula is the difference between the grower's
performance metric and the settlement's average, subject to a scaling
multiplier. Production periods for poultry are sufficiently short that
a grower will typically be in several tournaments in a year. Tournament
contracts can have advantages and disadvantages for both integrators
and poultry growers.
Agricultural production is an inherently risky endeavor, and
returns have some level of risk no matter the marketing channel or
structural arrangement. However, researchers have noted that in
addition to mitigating the risks of input cost and output price
variation, the tournament system also helps insulate poultry growers
from some aspects of what are known as common production risks. These
are systematic risks common to all growers in a tournament such as
weather or widespread disease, feed quality, or genetic strains. This
academic research finds that since those risks are likely to affect all
growers in a region, compensation is less likely to be adversely
affected under a tournament contract than it would be on a simple price
per unit of weight contract.\67\ For example, if an unusual heat wave
caused all growers in a tournament to experience poorer feed
conversion, all tournament growers may require more feed and a longer
grow period for their flocks to reach the target weight. They would
receive the same pay for the weight produced, while not being penalized
for the higher feed costs incurred to produce that weight.
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\67\ See, for example, Tsoulouhas, Theofanis and Tomislav
Vukina. ``Regulating Broiler Contracts: Tournaments Versus Fixed
Performance Standards''. American Journal of Agricultural Economics
83 (2001): 1062-1073.
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As noted, no contract type will protect growers from all market
risks, and tournament contracts still leave growers exposed to some
common risks. For example, when plants had to reduce processing
capacity due to the Covid pandemic, growers experienced reduced
compensation to the extent that they received fewer or less dense
placements from the integrators.
Tournament systems do not insulate growers from the other risks of
contracts discussed above such as the financial risk, liquidity risk,
the risk from incomplete contracts, and the lack of control over inputs
and production variables. And tournaments introduce new categories of
risks to growers: Group composition risk and added risks of settlement-
related deception or fraud. The risks of deception or fraud as
discussed above include the inability of growers to verify the accuracy
of payments, and to detect discrimination or retaliation.
Group composition risk is the risk associated with the composition
and performance of other growers in their settlement groups. A
particular grower's pay is impacted by the performance of others in the
tournament. Growers have no control over the other tournament members'
effort and performance, nor over with which other growers they are
grouped. An individual grower's effort and performance can be static,
and yet that grower's payments could fluctuate based on the grower's
relative position in the settlement group. Further, changes in payment
may not be commensurate with the changes in grower's effort and
performance. These characteristics of the tournament system can add to
the variability of pay and affect the ability of growers to plan and
measure their own effort and performance. On the other hand, the system
is designed to incentivize participants to do their best in the hopes
of gaining higher rewards.
The integrators also determine which growers are in each settlement
group. While growers in a group must have similar flock finishing
times, a live poultry dealer could move a grower into a different
grouping by altering layout times to change the week that a grower's
broilers are processed. An individual grower may perform consistently
in an average performing pool, but if the integrator places that grower
in a pool with more outstanding growers, those outstanding growers
raise the group average and reduce the fees paid to the individual. At
its discretion or per the poultry growing arrangement, an integrator
may remove certain growers it considers to be outliers from a
settlement pool. This would likely affect the average performance
standard for the settlement and affect the remaining growers' pay.
Group composition risk can be more relevant to some growers when a
tournament's settlement group contains growers with different quality
or ages of grow houses.
In addition, the current documentation of tournament terms provides
little to no information on the expected variation between individual
payments over time. Providing the settlement formula alone does not
give growers a means by which they can predict total income over a
meaningful period. More generally, an individual grower cannot estimate
the variance in pay across periods with the same accuracy as the
integrator with whom he or she contracts. Information that would be
provided pursuant to this rule would address this issue. Also, growers
do not currently receive information that allows them to understand the
impact of many integrator decisions made during the growout period that
may affect grower incomes. For example, integrators may switch the
genetics of chicks supplied to growers or change a feed ration or
supplier. Increased information required in settlement disclosure
regarding inputs and other factors will make it easier for growers to
assess the impacts of these decisions and improve their ability to
protect themselves against any systematic issues related to those
decisions.
Integrators benefit from tournaments systems, because they provide
integrators more control and certainty of the total pay to all the
growers in a settlement group. They also benefit from a system that
disincentivizes shirking with respect to production efficiency.
However, the incentive to avoid shirking can be imparted in a fixed
performance standard contract as well.
There is asymmetry in the information available to live poultry
dealers and the growers with whom they contract. Some of the
information held by live poultry dealers would be valuable to growers
because it influences grower compensation in tournament contracts and
might help growers in negotiating contract terms and making decisions
about capital investments and flock management.
The contracts themselves are often incomplete and exhibit asymmetry
in the information available to live poultry dealers and contract
growers. Because live poultry dealers supply most of the inputs, much
of the production information is available only to the grower from the
live poultry dealer. For example, the contract grower may not know
precisely how much feed it used, or how much weight the flock gained
under his or her care, unless the live poultry dealer provides the
information.
Growers may lack negotiating leverage with integrators to demand
transparency and completeness in contracts. Most growers have few live
poultry dealers in their area with whom they can potentially contract.
The table below shows the number of integrators that broiler growers
have in their local areas by percent of total farms (number of
growers), total birds produced (number of birds), and by total
production (pounds of birds produced).

[[Page 35005]]

Table 1--Integrator Choice for Broiler Growers \68\
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